Transcript

Meeting details

Webinar title: Mastering Tax Planning: Strategies for End of Tax Year 2025/26 Webinar Date: 06/03/2026 Presenters: Scott Gallacher, Chartered Financial Planner, and Martin Stanley, Chartered Financial Planner, of Rowley Turton

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Overview

This webinar focused on tax planning strategies for the end of the 2025/26 tax year, with particular emphasis on avoiding hidden tax traps and maximising tax efficiency. The session was designed for Rowley Turton clients and prospective clients, covering practical steps that could be taken in the remaining weeks before 5th April 2026.

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Key topics covered

• Hidden tax traps: The 60% effective tax rate for earners between £100,000-£125,000 due to personal allowance withdrawal, and child benefit clawback for those earning £60,000-£80,000
• Pension contributions: How contributions can reduce adjusted net income to avoid tax traps, with annual allowances of £60,000 and carry-forward provisions from previous three years
• Income splitting: Transferring assets between spouses to utilise both partners’ tax allowances and bands more efficiently
• ISA planning: Maximising the £20,000 annual allowance per person (£40,000 for couples) and the long-term benefits of tax-free growth
• Capital gains tax management: Using the £3,000 annual exemption, bed and ISA strategies, and spousal transfers to minimise CGT exposure
• Inheritance tax planning: Annual gifting allowances of £3,000 per person and the excess income exemption for regular gifts from surplus income
• Timing considerations: The impact of upcoming tax rate changes, including 2% increases in dividend tax rates from April 2026

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Q&A

Q: If I earn just over £100,000, would making pension contributions help reduce the 60% tax issue?

A: Martin confirmed that pension contributions would help by reducing adjusted net income below the £100,000 threshold. He explained that income between £100,000-£125,000 faces an effective 60% tax rate due to personal allowance withdrawal, so pension contributions in this band effectively save 60% tax, though the money is tied up until retirement.

Q: Should I prioritise using my ISA allowances before contributing more to a pension or vice versa?

A: Martin explained that both are valuable tools. Pensions offer immediate tax relief and help avoid tax traps, but money is locked away until retirement. ISAs provide tax-efficient growth with accessibility. He recommended a balanced approach between the two, which Rowley Turton can help determine based on individual circumstances.

Q: I understand the capital gains tax planning points, but I have investments I really like and don’t want to sell them. Should I keep them?

A: Scott explained there are ways to maintain exposure whilst managing CGT. Options include bed and ISA transactions (selling £20,000 and repurchasing in an ISA), or spousal transfers where one spouse sells whilst the other buys the same investment simultaneously, maintaining family exposure whilst utilising CGT allowances.

Q: With bed and ISA deals, if I sell £20,000 of shares to move into an ISA, what happens if the gain is more than £3,000?

A: Martin and Scott explained you can only realise gains up to the £3,000 annual exemption without paying CGT. If gains exceed this, you either limit the amount sold or accept paying some CGT. They noted that sometimes paying modest CGT today prevents larger bills in future, and the strategy requires a long-term view of overall wealth planning.

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Key takeaways

• Review income levels to identify if you’re approaching the £60,000, £100,000 or £125,000 thresholds where tax traps apply
• Consider pension contributions to reduce adjusted net income and avoid the 60% tax trap for high earners
• Ensure both spouses are using their £20,000 ISA allowances – unused allowances cannot be carried forward
• Review investment portfolios held outside ISAs for capital gains tax planning opportunities
• Use annual CGT allowances of £3,000 per person through portfolio rebalancing or bed and ISA strategies
• Consider income splitting between spouses to utilise both partners’ tax bands and allowances
• Utilise annual gifting allowances (£3,000 per person) and consider regular gifts from excess income
• Act soon – Easter holidays and provider delays mean early April may be too late for tax year end planning
• Seek professional advice before making changes, particularly around timing of dividends and bonuses

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Important information

This webinar transcript is provided for information purposes only and does not constitute personal financial advice. The content reflects general information and commentary at the time of the webinar and should not be relied upon as a substitute for professional advice tailored to your individual circumstances.

Rowley Turton is authorised and regulated by the Financial Conduct Authority. If you would like to discuss any of the topics covered in this webinar in relation to your own financial position, please contact us to arrange a consultation.

The value of investments and the income from them can fall as well as rise. You may get back less than you invest. Past performance is not a reliable indicator of future results. Tax treatment depends on individual circumstances and may be subject to change.

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Full transcript

Martin: Good morning, ladies and gentlemen. My name is Martin Stanley and this is my colleague Scott Gallacher. Welcome to the latest in a series of webinars for our clients and people who might be clients about issues to do with financial planning. Today we’re looking at strategies for the end of the tax year, which is a timely webinar because we’ve got a few weeks left now.

Why tax planning matters – you probably know it’s because you want to pay less tax. But a few specifics: there are some pitfalls you can face. 60% income tax – some of you might be thinking, surely it doesn’t go that high, but it can. Loss of child benefit can be affected by your earnings. That’s a tax issue as well. Capital gains tax is quite high at the moment at 24%. That can affect people with investments that aren’t in ISAs, and of course, that dreaded tax that everybody fears, inheritance tax. Today we’ll show you some ways that we can minimise these or even avoid them sometimes.

Just before we start, at your end, the microphones are muted and your cameras are off, so you can just sit back and watch us. There’s a Q&A feature at the bottom of your screen so that you can pop in any questions which we’ll answer at the end. At the end of this, we will send a copy of this webinar to your email so you can watch it again if you’d like to.

This page is just to tell you that anything we say is general information and for actual advice, you should come to us personally. So that’s us. And without further ado, questions we’re going to answer for you today: The spring statement was earlier this week – it didn’t change anything important. Where are the hidden tax traps in the system? There are a couple of sneaky ones which we’ll identify for you. Can pension contributions reduce your tax bill? Spoiler – yes, they can. Are you using ISAs as effectively as possible? Most of you will know about ISAs, but there are ways to use them which are more efficient than others. Income splitting is something perhaps you might not know about, but that’s something which can really help for married couples and civil partners. What should you do before 5th April? Not long now, but we’ve still got a few weeks left. And how can you help your family?

Spring Statement 2026: This wasn’t a budget, even though it’s a chancellor at the dispatch box talking about economics and the country. The budget is a different time of year and the spring statement is a roundup more of information to Parliament and the public. There are no major new personal tax changes, so don’t worry about that. It focused on economic forecasts and stability. In many ways, no news is good news. But the key thing is that although nothing happened, that nothing is itself impactful because the tax thresholds are frozen still and key allowances are frozen. That means as we hopefully get richer and our wages go up over time, we pay more and more of our money in tax. So that freezing of tax thresholds is actually quite important.

Hidden tax traps: Let’s go back and think about income tax. Most of you will know this. You get your personal allowance, which is the bit you get which is tax-free and that’s £12,570. If you earn just within that amount, you pay nothing at all. Then there’s a basic rate tax allowance, which is where most people sit, between £12,500 and £50,000. An awful lot of people are within that band and they know they pay 20% basic rate tax. The next one up for people who earn a bit more, between £50,000 and £125,000 is a 40% band, so-called higher rate tax. Skip to the bottom, you’ll see £125,000 up is the additional rate, 45% tax. But we skipped some section in the middle there – some nasty little tax traps.

Between £60,000 and £80,000, if you get child benefit as a family, you can actually pay more effective tax because some of that benefit is withdrawn from you. If you’re over £100,000, you can also lose tax-free childcare and childcare hours. So that is a form of tax as well and takes more money out of your pockets. And also with income tax itself, between £100,000 and £125,000, that personal allowance I mentioned, the free bit, the basic personal allowance, that is withdrawn from you if you earn over £100,000 and it’s a sliding scale and that means that you could end up paying 60% tax on a certain band of your income.

The 60% tax band: If you earn between £100,000 and £125,000, as you earn over £100,000, your personal allowance, the tax-free section, is gradually salami-sliced away, it’s gradually reduced. You lose a pound of the allowance for every two pounds of income you go over the threshold. What that actually results in is in the money in that band, you pay 60% tax. And also, you lose the tax-free childcare, which for a lot of families can be really important.

We’re used to thinking of the taxes – we all know that you earn more, the tax rates go up and up and up gradually. But it doesn’t actually look like that. It goes 20%, 40%, 60%, and then 45%. So that 60% band is a real nuisance, it’s a real problem and some people aren’t aware of that.

Example: Say you’re a £100,000 earner today, which is a good wage, but you get a £1,000 pay rise. You know that you pay 40% income tax, so that’s £400. And then the loss of the personal allowance – that’s the tax rebate, remember, that means that’s on £500. So the tax on that is £200. And that all adds up to £600. So that means on the £1,000 that your boss has granted you as a pay rise, you pay £600 in tax, a 60% tax rate, not a 40% tax rate at all. You keep just £400.

The planning opportunity is to make pension contributions or charitable gifts to reduce what’s called the adjusted net income, which is a calculated version of your actual income. And that brings you down for the purposes of calculation below the £100,000, which means, yes, you have put money into the pension instead of in your pocket, but you don’t pay that 60% which is a real benefit.

Child benefit tax charge: Child benefit is actually a pretty important benefit that could be quite a lot of money in the pocket each year. But it was decided a few years ago that for higher earners, the government decided they didn’t need it as much. So when adjusted net income – and again, that’s income once you’ve taken into account any pension contributions and charitable donations – once your net income there exceeds £60,000, you start to lose it. Up to £60,000, you get it in full, and over £60,000, it’s gradually withdrawn until if you’re at £80,000, you don’t get it at all.

This is a bit nasty because this applies to either people, either parent. So if both parents are earning £50,000, then the household income is £100,000, but £50,000 each. They still don’t lose the allowance because they’re under that £60,000. But if any one of them is earning over £60,000 up to £80,000, even if the other person doesn’t work at all, they still lose the benefit, which is for those people where one person is the main breadwinner, and another person is earning a lot less, that can hit even though their total income they might not feel is that high.

The effective tax rates there are not quite as bad as the 60% we were looking at in the previous example, but between 47% and 56% – that’s the effect on your money of earning over that rate and losing the child benefit. Again, if you can reduce what we call the adjusted net income by making a pension contribution or a charitable donation, then that can take you out of that band and save you some tax.

Worked example: There’s a person earning over £60,000 – they’re earning £70,000, two children, child benefit of £2,200 a year. So they’re in that bracket, the £60,000 to £80,000 bracket, so they’re halfway between the two. So they lose half of their child allowance in this case, so they would lose £1,100 of that. But in the planning opportunity, this person has put £10,000 of their earnings into a pension. So their adjusted net income is only £60,000. So that means they’ve restored £1,100 in child benefit, which is great. That goes into their pockets. And also by making a pension contribution, of course there’s tax relief on the contribution itself, and that also saves £4,000 income tax. So this is a really great way of putting more money in your pocket and less money in the pocket of the Chancellor.

I’m going to go now into a bit more detail about how we avoid these traps, what the practical steps are you can take. I’m going to take the first couple of sections. My colleague Scott is going to talk about ISAs, capital gains tax planning and charitable giving.

Pension contributions: Is it the most powerful tax planning tool? I think it probably is. Just to recap on how it works, if you earn money and pay tax, if you put that money into a pension, you get the tax back. That’s basically how it works. So if you’re a higher rate taxpayer, you’ve paid 40%, well, it actually only costs you to get a £10,000 investment, £6,000, because 40% is given back by the government. Turning £6,000 into a £10,000 investment, albeit in a pension, it is tied up for a bit. That’s a pretty powerful tool, I think we can all agree.

Note that salary sacrifice, that’s a way of arranging for your employer to pay your contribution through the payroll. And that can also save some additional national insurance, although that’s changing in a few years’ time.

I mentioned the concept of adjusted net income. That’s just your income that you normally would say “I earn X amount of money,” but we adjust it for the amount you pay in pension contributions and the amount you pay in charitable contributions. And it’s that figure which is important for those tax traps we talked about – the losing the personal allowance and the losing the child benefit.

Pension contributions can reduce a 60% tax band, that nasty £100,000 to £125,000 tax band in which you pay 60% tax effectively, and the child benefit tax charge from that nasty £60,000 to £80,000 band into which a lot of people will fall, and also the high rate tax itself – it can take you out of the 40% tax band back into the 20% tax band.

An example: if you have income of £70,000, but you decide to put £10,000 into a pension, your adjusted income is only £60,000 and you get your child benefit back, so that is a win for you and a loss to the Chancellor.

Pensions are really, really powerful. You are limited in how much you can put in. But the limits are pretty good really. You can put in £60,000 a year. Not many people do that, although there is a cap on that. You can only put in as much as you earn. So despite it being £60,000, if you only earn £40,000, that’s as much as you can put in. If your employer contributes, they can put in more for you. They’re not restricted by the earnings. But it all does count towards this £60,000 a year overall maximum.

If you don’t use your £60,000 in previous years, you can bring some of those allowances forward to the present year. So you can sort of catch up for the previous three tax years. So that’s pretty useful. People who have a large amount of money perhaps in cash and they’ve been a high earner and think, “well, how can I avoid some of these tax traps?” You can do that by making pension contributions and really benefit from the tax system.

Income splitting: This is the concept of not having all your eggs in one basket in the sense of husband and wife partners. If you’re married or in a civil partnership, it’s quite common for one person, the breadwinner often, to have most of the assets and most of the money in their name. Maybe it’s a rental property, maybe it’s just the bank accounts, things like that. Maybe it’s investment funds. It’s often the case that the other person is earning a lot less and they’re not using all their tax bands. Well, it’s not a great idea having all these assets in a higher tax paying person’s name. If you split that money between you or those assets or even the property between you, you can allow both parties to use your allowances, your personal allowances. Remember that’s the tax-free bit at the bottom of the calculation, the £12,570, the basic rate band. It’s lovely to have your income falling all into the basic rate band rather than the 40% band.

That would apply to investments, investment funds, unit trusts, savings money in the bank. A lot of people we find have all the money piled into one person’s name. And it’s often not a great idea. Buy-to-let property is a very common one. It’s in the name of the person whose house it perhaps originally was. And they can perhaps save tax by moving it into joint names. And also if you have a family business, splitting dividends – more commonly people are aware of this, splitting it between husband and wife, but it’s still something to think about.

It’s important to say that this isn’t just a paper exercise. If you do this, assets must be genuinely moved. It’s not just something you can make a statement on a piece of paper. You must actually share those things with the partner. There is a negative side. You must remember that divorce can affect this. If a couple split up, then having given assets to each other can obviously have an impact there. So there’s what we sometimes call a divorce tax that can come in.

Just as an example, if you have investment income of £20,000, that’s great. But if it’s all received by one person and they’re a higher rate taxpayer, they pay a lot of tax on it – £8,000 if it’s rent or interest, less than that if it’s dividends, but still quite a lot. So let’s say that we split it between that person and the spouse who’s a basic rate taxpayer. Well, that half is obviously taxed a lot less. The potential tax saving there is a couple of thousand pounds a year in rent or interest, or £2,500 if it’s dividends. So that is a proper saving and it’s really easily done.

These sort of ideas that we talked about, the moving income, taking advantage of pensions to reduce your adjusted income, all of these things can really give you more money in your pocket, which is, at the end of the day, what we want rather than the Chancellor. There’s a few other things to talk about and I’m going to pass over to Scott to talk about those, about timing of income. He’s also going to talk about ISAs and capital gains tax and inheritance tax, which is a big one. So without further ado, Scott.

Scott: Thank you very much, Martin. Timing of income – this is something that’s probably overlooked by some people. I’ll just run through some very quick examples. The first point to say is that some of the tax rates are increasing. So in simple terms, dividend tax on basic rate taxpayers and higher rate taxpayers, albeit bizarrely not additional rate taxpayers, is increasing by 2% from next tax year. So within a month’s time. And income tax on savings and rental income is increasing from April 2027, that’s a year later. So simply that’s going up by 2%.

So if you’re a business owner and you’re thinking about, “well, do I pay myself a dividend in the new tax year or do I pay it today?” there is an argument for paying it earlier. Because you’ll be paying as a higher rate taxpayer 33.75% instead of 35.75%. So it’s a 2% saving. So if you know that’s a £10,000 dividend, that’s potentially £200 for paying it now versus later.

There are some caveats in this and this is where people need to be careful, which is we mentioned earlier about all these tax traps and that can add or take away from that plan. So on one hand, if you’re thinking “well I’ll pay my dividends now, so I pay 33.75% instead of 35.75%, so I save 2%,” well that’s great. But if you’re on that £100,000 earnings, that’s going to put you into the 60% tax band, that’s a really bad idea. So that’s going to cost you more than you’ll save. So again this is where you need to speak to your accountant and/or financial adviser just to check that.

Equally, if you’re actually through that 60% band – so maybe you’re £125,000 total earnings and you take £50,000 salary and £75,000 of dividends – you might actually be better to take more dividend this year, pay the 45% additional tax rate band, but then to take less next year so you can actually bring yourself down below the £100,000. So yes you’re going to pay some additional dividend tax rate but you take yourself next year out of the 60% band. So almost we would call it a yo-yo strategy of high income one year to pay more tax in one sense, but to only have one 60% tax trap. So next year you pay yourself less and vice versa. So there’s some things about that.

On the savings accounts point, there’s an issue with regards to fixed interest savings accounts – one year, two year type accounts. They generally, not always, but generally they pay the interest at the end when they mature. So in two years, three years time, again you want to be a little bit careful on that. You want to check obviously the rates and the terms and so on. And don’t let the tax tail wag the investment dog as it were. But if you’ve got say a three year fixed rate savings account that’s paying out in three years’ time, well that interest is then going to fall into the tax year when you’re going to be paying an extra 2%.

So when you’re weighing up instant access, short term notice accounts and longer term notice accounts, just bear that in mind. We’ve done it before really cleverly where we’ve worked with clients to adjust their other income – dividend, pension, etc – to actually create a year when their overall income is much lower at the same time that those fixed rate accounts mature and that can give an incredible income tax saving. You have to be on the ball and quite clever, but that’s obviously what we do here at Rowley Turton.

ISAs and tax shelters: Do tax shelters matter and do they matter? There was a period when interest rates were low, people thought ISAs weren’t really worth bothering because there really wasn’t much of a tax saving. What we’ve seen with interest rates going up, then people’s taxable income has gone up if you haven’t been using ISAs. And people have been kind of caught out by that. So that’s why we’re always a big fan of using ISAs.

If we just look at a client with £100,000 of investments, 5% dividend income, they’re a higher rate taxpayer. Within all the allowances for ISAs, there’s a small dividend allowance. So essentially outside the ISA they’re paying nearly £1,800 in tax. Within the ISA, it’s tax-free.

Now if this is a couple and they haven’t done any ISAs, well we could put two lots of £20,000 into ISAs this year for husband and wife, that’s £40,000. We do the same in a month’s time, 6th April, that’s £80,000. And then basically within just over a year we’ve got the whole £100,000 in comfortably. So this isn’t an academic exercise, it’s quite easy to do if people are proactive.

ISAs, just to recap – I’m sure most of us here today will know this but it’s £20,000 per person per tax year. Couples can effectively invest £40,000 per year, £20,000 each. They include cash ISAs, stocks and shares, lifetime ISAs if you’re saving for your first home and other things. Junior ISAs, good idea for kids and grandkids, the limit there is £9,000. But they really are one of the key building blocks of financial and/or tax planning.

Why are ISAs so powerful? Hopefully we’ll know this, but no income tax, no capital gains tax. You don’t get tax relief in the way that you do with pension contributions. But once money is in the ISA, effectively it’s tax-free. We would say tax-free forever, but that is with the caveat until the government changes the rules. So they haven’t changed the ISA rules in that sense, but from day one. So we’re going to assume they’re going to keep it forever. No tax reporting, use it or lose it. Unused allowances can’t be carried forward. So if you’ve got significant money – I use that £100,000 example a moment ago – if John and Jane don’t put the £40,000 into ISAs this year, they’ve missed out. So it’s going to take an extra year to get that money in, which is obviously not ideal.

It’s worth pointing out, we’ll mention inheritance tax in a moment, about income exemption and gifting. ISA income, even though it’s not taxable, does count for that exemption. Not everyone realises that.

Long term value: £20,000 a year, 10 years, that’s £200,000 you’ve paid in, plus hopefully growth and/or interest. So it’s probably worth more than that. £40,000 for a couple. And all future income and growth tax-free, hopefully forever, certainly unless the government changes the rules.

The cost of not doing this: If you’d put £20,000 into an ISA for the last 20 years with steady 5% growth, which isn’t excessive, and then you want to cash that plan in, within the ISA, there’s no tax, so no income tax, no capital gains tax. All the money is yours. Had you invested that just in a normal general investment account, basically a non-ISA investment, you’d be looking at capital gains tax of about £63,000 somewhere in that region. So it’s not small change, it’s a huge amount of money.

This is something that you’ll see in the Daily Mail a lot about couples with a million pounds in their ISA, which is not common but isn’t unachievable. So the couple puts in £20,000 a year, £40,000 a year. We assume 5% growth. After 20 years, that’s £800,000 invested, £1.3 million portfolio. They might say, “who can afford that?” A lot of our clients are earning seriously good money. They don’t spend it all. And there’s a very good way of putting it away.

It’s not only the tax advantages kind of as you go along, to some extent, if you look at that as kind of an income strategy – doesn’t replace pensions, but as an addition – at the end of that 20 year period, we’ve got £1.3 million in ISAs. If we get a 4% yield, which to be honest you could currently probably get with a cash ISA or some kind of dividend type strategy, well, it would save between £18,000 and £20,000 a year in income tax every year, depending whether it’s dividend or interest. So effectively it’s almost paying you one whole person’s ISA every year just in the tax saving. So this starts to seriously add up.

Capital gains tax: Same as pensions is ideal, ISAs ideal. Hopefully for a lot of people they won’t have a capital gains tax problem. But if you’ve got more money than you can pay into those and you’ve got money invested, then it’s hopefully going to make a return. And if you realise that return, you have to pay capital gains tax.

Those rates are 18% for basic rate taxpayers, 24% for higher rate taxpayers and the gain effectively moves you between the bands as well. So if you’re a basic rate taxpayer on £50,000, you make a £50,000 profit, that profit then effectively pushes that gain into higher rates of tax. So that’s just important to be aware.

There is an allowance, used to be much more generous, used to be £12,300. I believe it’s currently only £3,000. So this is one of the hidden tax raids that the government kind of does on you in the sense of reducing allowances over time. But it’s still £3,000, which is still something. A couple effectively £6,000, husband and wife. Again, this is an allowance that can’t be carried forward. So if you don’t use it, you lose it.

What we will do for clients a lot is we will do a lot of changes every year to utilise this £3,000. So if a client had say a £50,000 portfolio and at the end of the year it’s worth £53,000, so 6%, it’s an okay year. We might then rejig it entirely to sell it and rebuy it to realise that £3,000 profit, effectively rebasing it. I would argue all good financial planners should do it. But in my experience not all do.

So if we realise that £3,000 profit or gain each year, so we’re rebasing it, over 20 years that’s £60,000 of gain realised tax-free. The allowances used to be more, so it would be even better. £120,000 for a couple. Now if we look at the couple and we said that CGT is probably 24%, so we’ll call it a quarter to make the maths a bit easier. That’s a £30,000 capital gains tax saving if they then need or want to cash that money at the end.

So again, these are very big numbers. Planning strategies – bed and ISA, we would take it from your non-ISA, use the CGT allowance, put it to an ISA. So supercharge the tax benefits really. Using spousal exemptions, we can transfer between husband and wife. I mentioned income splitting. It’s kind of that idea. So you pass assets to your spouse and they realise the gain.

Important – this is only for married couples and/or civil partnerships. If you’re in an unmarried partnership, cohabitation etc, then a gift to your spouse is going to be a disposal for capital gains tax purposes. You have to take care on that.

Also reporting capital losses. If you do make a loss on an investment, you actually have to record it. Otherwise that loss, you lose the benefit of that from a capital gains tax purpose. In simple terms, I’ve bought some investments, they haven’t worked out very well. I’ve sold them. I’ve lost £10,000. If I do nothing because there’s no tax to pay, that seems sensible, but that £10,000 effectively disappears from the tax system. Whereas what I actually want to do is speak to my accountant or put it on my tax return. I’ve lost that money. That loss is then effectively recorded. And if I then make a £10,000 profit elsewhere in the future, I can offset it against that. So I don’t pay any tax. Again, it’s a simple thing, but people do overlook it.

Bed and ISA – this is just taking money from non-ISA investments, selling some to realise the gain for capital gains tax purposes and moving £20,000 or £40,000 for a couple into ISAs. And we do this a lot. So we’ll start with a big pot of money which we can’t all get in ISAs. We will slice it and dice it every year and put it into ISAs. So effectively moving from a taxable environment to a tax-free environment. And in one hand it’s very simple. But it’s amazing the number of people that don’t do it and then have a tax problem down the road, which could have been avoided with sensible, proactive planning.

None of this is aggressive and none of it’s dodgy tax planning. It’s not going to get you on the front page of The Sun. It’s all perfectly legitimate, but not everybody does it.

Inheritance tax: That’s an increasing concern to people and will get worse from April 2027, when, in simple terms, pension funds are going to be included in your estate. So one of the big tax planning angles we’ve used – pensions, which still are incredibly powerful planning tools – was using pensions for inheritance tax planning. That advantage is effectively going from April 2027.

So therefore, some people who don’t have an inheritance tax problem today because they’ve got a lot of money in pensions will suddenly find themselves having an inheritance tax problem. Other people that already have an inheritance tax problem, it will get worse because the pensions are going to be included. So this is – inheritance tax is always a key concern of clients and this has just ratcheted it up to a whole new level literally overnight.

I would estimate that the inheritance tax problem just created amongst our clients from this is probably in the region of about £40 million. So this is not a small number. So people now need to be much more proactive than they were for the last 10 years.

One of the easier ones to do – it’s not a massive thing, but it does help and it does add up – is that we can all gift away £3,000 from ourselves to anybody we would like per tax year, and that is tax-free from inheritance tax purposes. A couple that adds up to £6,000. And if you didn’t use last year’s gifting allowance, you can use that as well. So effectively we can give as a couple £12,000.

That allowance only carries forward one year. So if I haven’t given any money, I could be giving my boys £12,000 this year. If I don’t, then technically I can give them £12,000 next year because I’ll be using this year’s allowance, but I wouldn’t then be benefiting from next year’s allowance. In a sense, I’ve lost one. So you want to do it.

Second thing – last time we did this, which was a year or two ago, we talked about this a lot and I’ll just cover it very briefly. There is a bizarre thing in the tax system where they seem to treat income and capital differently, which actually works really well. So in a sense the Revenue kind of says, “well, actually, if you’ve got some income, you’ll pay some income tax. It’s a bit unfair to charge you inheritance tax on it as well if you give it away.”

And so what they say is if I’ve got more money coming in, net of tax, than I need to spend for my normal day-to-day living type thing, I can give that tax-free. If I don’t take advantage of that by way of kind of a regular transfer of the money coming in and it going out again, effectively it becomes capital very quickly. And I do have an inheritance tax problem.

But we can use that for school fees, supporting the grandchildren, savings. We could pay into pension contributions for the children on a regular basis, providing regular support. Maybe just some of these – I know daughters take career breaks or have children. Maybe just pay £500 a month into their bank account to help them out, pay the mortgage, whatever it is. As long as you can show “my income is here, my expenditure is there, there’s a gap and you’re gifting away some of that gap,” you’re fine.

It’s worth pointing out that ISAs, whilst not taxable in any way, shape or form apart from inheritance tax potentially, the income from ISAs can be used as part of this equation. And so it’s not just your taxable income. So this is something people overlook. So some people might have £20,000 in ISA income and when you add that, that income might be all excess and might be able to gift it away tax-free from an inheritance tax perspective.

So this is again really good planning. You have to kind of set it up and kind of get going. It’s not like a big win at day one, but long term it’s massive.

Very small point – small gifts allowance, £250 per person. You can’t combine it with the £3,000 gifts. So you can’t give your son £3,000 and £250 and it be exempt, but you could give your son £3,000 and his children so your grandchildren £250 each. And so if you’ve got 10 grandchildren, that’s £2,500 a year. As a couple, grandma and granddad, that’s then £5,000 a year.

I always joke that Genghis Khan is supposedly great-great-grandparent or whatever he is to about a billion people. So theoretically you could give about £250 billion away a year. So again it can add up if we’ve got lots of children, lots of people we want to benefit.

So this £6,000 a year – £3,000 for husband and £3,000 for wife – 10 years that’s £60,000 out of your estate tax-free, a potential inheritance tax saving £24,000. And by doing it on an annual basis arguably it should be more manageable. It’s not as big a commitment as making a huge gift. We do a lot of huge gifting and trusts for that, but this is the smaller end but it’s also the more manageable and the less likely to affect your overall financial position because you can stop doing it if it becomes an issue.

Quick end of year checklist: I suppose number one is probably “do I have an issue?” Look at the numbers or speak to us or your accountant about “okay, what’s my problem? Is it something I need to concern myself about?”

Pension contributions is normally number one. There’s some reasons why it might not be, but normally that’s the go-to. If we’re retired and not working, that’s less of an issue or less of a benefit I suppose.

ISA allowances, as I mentioned before, very, very powerful. We should be using those.

Reviewing your capital gains tax exposure – that’s a relatively easy win for portfolios. Sometimes it’d be simple as we are selling ABC managed fund and we are buying XYZ managed fund and those funds can be very similar, very similar performance, very similar charges, but that can save us capital gains tax and this is the kind of exercise we do on an ongoing basis.

Using the gifting allowances – check the income levels, especially income from ISAs which is hidden. Even dividend income in an investment ISA, look at adding it to your overall income, look at your expenditure, look at whether there’s a gap, look at whether we want to be gifting on a regular basis and if so put in some kind of strategy. It could be as simple as standing orders to the children or a gift through a trust or pension contributions or even ISA contributions for children.

Is it worth reviewing your position before April 5th? I’d say most people should review their financial affairs on a regular basis anyway, but the key people that are going to benefit I think is if your income is approaching £50,000, £100,000 or way in excess of those numbers. If you’ve got investments outside ISAs or pensions because there’s capital gains tax planning, income splitting, all the other things we’ve talked about. If you expect bonuses or dividends this year – again we’re towards the end of the tax year, but I mentioned you might want to bring dividends forward but then equally some people might want to push them back. So again there’s a lot of planning on this and normally better to speak to us or your accountant before making any action. Better to be kind of pre-warned if you’re going to create an inadvertent tax issue.

If you’ve got unused ISA allowances – amazing that people still have savings and not fully utilising their ISA allowances. Sometimes on cash savings there’s a little bit of a rate difference. So there’s an argument there of getting penalised for doing an ISA. The banks like to diddle you, I would say, in terms of giving a slightly lower rate, but if you’re a higher rate taxpayer, that still normally works out in your advantage.

If you hold large cash savings, again there’s an issue about whether that could be used more tax efficiently. It doesn’t have to not be cash but it can just be perhaps through a pension in some cases or an ISA more tax efficiently.

Income splitting we mentioned earlier. If you’re considering helping your family financially, this then ties back into the inheritance tax planning and other allowances.

The other thing is if you’ve got too much money yourself – we mentioned earlier about a husband and wife putting in £40,000 a year into ISAs and how that adds up. Well, maybe we could start helping the children today fund their ISAs rather than you having too much money, dying, paying inheritance tax and then the children being stuck with all this money but then not being able to put it into a tax-efficient shelter very quickly. We could be very proactive which saves you potentially income tax and capital gains tax, hopefully inheritance tax as well and also saves the children income and capital gains tax. So it’s a win-win for everybody concerned.

If two or more leads apply then a review is definitely worthwhile. I’d say one is probably worth a chat, but if two of them then it’s almost certainly going to be worth giving us a call.

In conclusion: Me and Martin have covered the hidden tax traps. We’ve looked at the big tools, pensions and ISAs and touched on some smaller points. Don’t ignore CGT and gifting, especially if we’ve got assets outside ISAs and/or an inheritance tax problem. Timing matters – income splitting, dividend timing and all those things and you can win or lose on that depending what you do. We’re very good at sitting down with you and either a calculator or even a pen and paper and work it out kind of longhand to work out whether you will save or lose money by doing certain timing issues.

Next up really is if you’re one of those people who’ve got one or two or more of those issues I mentioned earlier, a short tax year end review can confirm what’s worth doing in your circumstances. I point out there’s not on the slide, but Easter falls really badly for the end of the tax year and that is from a practical angle of not only ourselves and our availability because of bank holidays and things, but also providers and the ability to make ISA contributions and pension contributions. So on one hand I’m sitting here thinking well we’ve got a month, we’ve probably got about three weeks. And my diary is filling up and I’m sure Martin’s as well. End of tax year is normal. So if you’re ringing us or any financial adviser on 5th April, not sure anybody’s open, it’s probably too late. So you want to do it early.

Just finally, I mentioned earlier it’s none of what we do is dodgy type shenanigans. There’s a quote that’s often quoted but in simple terms the taxman and the government use all the powers that they have, which are immense, to take every penny out of our pockets that they deem is fair and reasonable. But we’re entitled to use the same rules which we do not create in order to keep as much in our pocket as we can. And I’ve never really had a client who’s had a moral issue on that. We would never do anything that we think was questionable anyway.

How can Rowley Turton help? If you’d like help just give us a call or drop us an email. Martin’s is martin@rowleyturton.com is probably first call and we can tell you what’s relevant before the 5th April or whether or not we think you’ve got an issue. We can also tell you whether it can be left until later which is less of a panic and less need to rush things and what you can ignore entirely.

It should have been mentioned I think on the invite but we have a book by Paul Olmsted called “Enough.” It’s a kind of financial planning guide, explains how we work. We’ve mentioned inheritance tax planning quite a few times. The key point is actually do you have enough or actually too much. And if you’ve got more than enough you need and you’ve got too much, then yes, we probably should be looking at inheritance tax planning if you want to pass more money to your children and less to the government.

Martin: We have a few more questions coming in. So we’ll go through those. If you’ve got any questions at all, would like to talk about anything, please get in touch. I’m martin@rowleyturton.com and it’s scott@rowleyturton.com. Please get in touch, we’ll be delighted to hear from you. We will send an email with a recording of this webinar.

We’ve got another question coming in. An anonymous attendee says “Bed and ISA deals – if you sell £20,000 of shares and then ISA, what is the implication if the gain is more than £3,000?”

Good question. Ordinarily, what we’d want to do is sell as much as we can of the non-ISA within that £3,000. So if you’ve got a £10,000 holding and £3,000 of that is profit you’ve made, you could move all of that £10,000 into the ISA and that £3,000 profit is still within the allowance. But if that profit was more than that, then you’d either be limited on the amount you could sell to the ISA or you’d have to accept a little tax bill. So you do have to work within that allowance. Unfortunately, as Scott mentioned, that £3,000 allowance is pretty small now. It used to be a lot more, but we do what we can. For most portfolios obviously we find that doing that regularly year after year, we can move quite a lot of money from the non-ISA into the ISA and then it’s tax-free forever and ever.

Scott: To add to that, I think obviously we need the bigger picture. So if you’ve got, say, £20,000 of shares and that’s all you’ve got, and you’ve got say £6,000 gain and you’ve not got any other money, then what we’d say is, well, the ISA allowance is hopefully going to be there for a while and we don’t want to pay tax unnecessarily. And parking aside any issues about risk of holding an asset for longer than we perhaps need to, what we might do in that situation is sell £10,000 today, £3,000 profit, put that into an ISA. Sell the other £10,000 in the next tax year, another £3,000 profit, and we’ve used two ISA allowances. And this time of year that’s only a few weeks.

If you’ve got a lot more assets than that, so we’re always going to have more than enough and always going to be funding our allowances so we don’t miss out on the ISA allowances, and we’re always going to have a capital gains tax problem, but the only money we can put into an ISA is from this investment portfolio, it might be practical to say, “right, okay, I’m going to sell £20,000 worth of shares. That’s going to be a £5,000 profit for sake of argument. Yes, I’m going to pay capital gains tax on that £2,000 excess profit and if I’m a higher rate taxpayer, that’s going to be 24%, so £480. But the bright side is then we can fully fund the ISA. So we now got £20,000 in there. So next year we’re not getting taxed on that money.”

If you think about the other way Martin said and I said earlier, well, we sell some of it, so we sell £14,000 only to realise the £3,000 of gain, which from a capital gains tax planning perspective is much better. We’ve then got £6,000 of money we didn’t put into the ISA. Well, hopefully that £6,000 is going to continue to grow. So next year our capital gains tax problem is going to get worse.

So it’s a kind of a judgement call and we would sit down and sometimes, nobody likes paying tax. We at Rowley Turton hate to pay tax as much as you do, but sometimes it’s necessary to pay some tax today in order to have a better longer term tax saving. And I think that’s the key point and you’ve just got to be very pragmatic about it and sometimes you just have to take the tax hit.

Equally, we’ve mentioned before, we’re not really focused on this exercise but if you’ve got investments and all your eggs in one basket, but there’s a big capital gains tax bill, sometimes the sensible thing is you’ll take the capital gains tax bill just to get out of having all your eggs in one basket. And the danger is you hold on to that single investment. If it continues to do well, fine, because you’re worried about capital gains tax, so you keep it. But if that does a kind of Marconi or an Enron or a Woolworths or Wilko’s or something like that and then just disappears overnight, which companies can do – it’s less of a problem with shares of funds but certainly individual shares. So you do have to be careful.

So everything we said is about sensible tax planning, but you still need financial planning and investment planning oversight to make sure we’re not or you’re more importantly not doing anything reckless from an overall wealth situation.

Martin: And we can help you with that. So thank you for that last question. Again, let us know if you have any other questions. We’d love you to get in touch. Look out for another email in due course with the next of these webinars that we do periodically, normally every two or three months and we look forward to seeing you at the next one. Thank you very much.

Scott: Thank you everybody.