TOP TIPS FOR TAX YEAR-END PLANNING
Private Client Tax Partner
You want to make sure you’re doing all you can to reduce your tax bill. We’ll put money on it. But with the year-end looming, you’d be forgiven for feeling a tad under prepared when it comes to getting on top of your tax.
Taking advantage of all the reliefs available and implementing some key planning strategies takes hours of research and lots of technical knowledge, right?... Wrong.
That’s where our top tips come in – they’re a step by step guide through some of our best bits of advice. Have a read through, and if you have any questions don’t hesitate to get in touch.
• If your income is between £11,851 and £46,350, you’ll be taxed at the basic rate of 20% (dividends 7.5%).
• If you earn between £46,351 and £150,000, you’re in the higher tax band which means you’ll pay 40% tax (dividends 32.5%).
• Your personal allowance is reduced by £1 for every £2 of income above £100,000. This means there’s no personal allowance when income exceeds £123,700 – but check out our top tips below to find out how you might get it back.
• For earnings over £150,000 you will be taxed at the additional rate of 45% (dividends 38.1%).
Our Top Tips:
• The personal savings allowance grants £1,000 of tax-free savings income to basic rate taxpayers. For higher rate taxpayers this figure is £500. Additional rate taxpayers don’t receive this allowance, so if you can, make sure you use it.
• The £2,000 dividend tax allowance is available for all taxpayers. Amounts falling within this allowance are taxed at 0%. Make the most of it.
• You can transfer income producing assets to a spouse or civil partner to make sure you’re both using all the available allowances. This is also useful if they’re taxed at a lower rate.
• Reduce your higher tax rate liability by reducing your taxable income. This can be done by making payments to a pension plan, making donations to charities under ‘Gift Aid’ or converting income into non-taxable forms. This can result in great savings if your income is between £50,000 and £60,000 and you get child benefit, or if you are above £100,000 and losing your personal allowance.
• Where possible, claim capital allowances when you buy assets that you use in your business. This annual investment allowance (AIA) increased from £200,000 to £1,000,000 in January 2019.
Capital Gains Tax
• This is a tax on any profit you make when you sell an asset that has increased in value.
• For 2018/19 you may make gains of £11,700 tax-free. This exemption cannot be carried forward into the next financial year.
Our Top Tips:
• If you haven’t used your annual exemption think about selling assets before 6th April 2019.
• Make sure you’re utilising your spouse or civil partners’ annual exemption by transferring assets to them before selling them.
• Entrepreneurs’ Relief is available on the first £10m of an individual’s lifetime qualifying gains. This can mean that capital gains tax is due at 10% rather than 20% but you need to check that this is the case.
• If you own a second home, or a holiday home, you can decide which property is treated as your primary residence, and therefore which property is exempt from Capital Gains Tax. Plan this carefully as the exemption of a gain on one residence means the gain on the other becomes chargeable. You must elect your main residence within two years of purchasing the second one.
Pensions & Investments
• You can pay up to £40,000 a year into a pension scheme. Unused allowances from the last 3 years can be used if you were a member of a qualifying pension scheme.
Our Top Tips:
• Make sure you review your allowances. The £40,000 allowance is reduced by £1 for every £2 of an individual’s total income over £150,000. If your income exceeds £210,000, you have a £10,000 allowance plus any unused allowances from the last 3 years.
• The Lifetime Allowance is the amount of money you can hold in pension schemes without facing penalty tax charges when you take pension benefits. For 2018/19 this figure is £1.03m – so make sure you check if your pension pot is at or around this number.
• Take advantage of your ISA allowance, which is currently £20,000.
• If you’re aged 18-40 you can open a Lifetime ISA and put in up to £4,000 a year until you’re 50. The government will add a 25% tax-free bonus to these savings, up to a maximum of £1,000 a year. This £4,000 counts towards your £20,000 annual ISA limit.
• Consider investing in schemes or shares such as Enterprise Investment Schemes (EIS), Seed EIS (SEIS) or Venture Capital Trusts (VCTs). These investments offer upfront income tax relief, but can carry higher risk, so get in touch with us to discuss the best option for you.
• Inheritance Tax (IHT) is charged at 40% on the part of your estate (property, money and possessions) that’s above the £325,000 nil rate band (NRB).
Our Top Tips:
• Make regular gifts out of your after-tax income. You can give up to £3,000 each tax year, and if this amount is unused it carries forward for one year. These gifts can be exempt from IHT as soon as they are made.
• Make a will – dying without one may increase tax and mean that assets are not distributed as you wished.
• Review the size of your estate and your will to make sure you benefit from the Residence Nil Rate Band. This is an additional amount up to £125,000 available on top of the individual NRB where the deceased has left a residence to his or her direct descendants.
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