Time to Consider End of Tax Year Planning
With your self assessment tax return submitted for the year ended 5 April 2018 it’s time to look at planning how to reduce your tax bill for the tax year ending 5 April 2019. In order to do this, ensure that you have made use of your allowances, reliefs and exemptions.
Have you considered any of these?
Tax Free Savings / Cash ISA
This year you can save up to £20,000 in a cash ISA, stocks and shares ISA, or you can have both.
You will also have a personal savings allowance. If your adjusted income is up to £46,350 then your allowance is £1,000. If it is between £46,351 and £150,000 the savings allowance is £500.
In a regular savings account you pay tax on interest earned above your savings allowance at either 20% or 40% depending on your tax rate.
This allowance means that you will not have to pay tax on the first £2,000 of dividend income, no matter what other non-dividend income that you have.
Pension Annual Allowance
Pensions are still one of the most effective ways to plan for your retirement. In 2018/19 most people are able to place up to £40,000 into a pension tax free. The allowance which is unused from the previous 3 tax years can also be carried forward and used in the current year. See our previous article for more information on how pension tax relief works.
Pension contributions can also be effective to reduce your tax liability in other ways, e.g. for the purposes of both the High Income Child Benefit Charge (£50,000 income threshold) and the tapering of your personal allowance (£100,000 income threshold) your income is considered after deduction of gross pension contributions.
Capital Gains Tax Exemption
Remember that each individual has an annual capital gains tax exemption of £11,700 in 2018/19. Now is the time to look at your assets and consider realising gains to make use of your allowance efficiently. If applicable, do also consider transferring assets between spouses/civil partners as this can maximise use of both of your allowances.
When making a charitable contribution which is gift aided you will receive tax relief for the higher or additional rate tax that you would otherwise pay, while the charity benefits from
the basic rate tax. As above for pension contributions, gift aid donations are deducted from your income before consideration of various thresholds.
Annual Inheritance Tax Exemptions
Most people wait until death before transferring their wealth via their Will, but you can transfer part of this whilst you are alive, and do this tax efficiently using various exemptions.
* Potentially Exempt Transfers (PET) – you can make gifts but in order for them to be fully exempt from IHT on death you will have to survive for seven years. However, the following gifts are exempt from IHT however long you live afterwards.
* Each tax year you can gift £3,000 and this will not be subject to IHT. If you have not used it in the previous year then you can claim £6,000 in the current year.
* You can give as many gifts of £250 per person as you want during the tax year as long as you have not used another exemption on that same person.
* A parent can give £5,000 to each of their children as wedding gifts.
* A grandparent can gift £2,500 for a wedding gift.
* If you make regular gifts which come out of your income and do not affect your standard of living, then any amount can be given away and there’s no impact on your IHT.
Enterprise Investment Scheme (EIS)
You have an annual allowance of £1 million. Investments into qualifying EIS investments will qualify for income tax relief at 30% of the amount invested, and you can also use these investments to defer capital gains on other assets.
Seed EIS (SEIS)
The annual allowance is £100,000. However this is attractive as an investment as you receive 50% income tax relief and there are also capital gains tax reliefs.
Venture Capital Trust (VCT)
The annual allowance is £200,000. Investments in qualifying VCTs attract a 30% income tax deduction plus future dividends are tax free.
This is a good time to consider your options, either for 2018/19 or going into 2019/20.
Please contact us if you wish to discuss any of the above or other tax planning opportunities.