With the end of the tax year fast approaching, there may still be time to review your tax and financial affairs to make sure you have optimised all your tax allowances and tax planning opportunities. So here’s a few of things to look at before the start of the new tax year on 6 April 2019.
One of the first things to do, if you can, is to make sure you have used your Isa allowance. For the year 2018-19, this is £20,000 into an Isa as well as £4,260 into a Junior Isa. This makes sense as going forward, any future income and gains are free of tax, and if you don’t use your allowance this year, it is lost forever.
In addition, you need to ensure you use your savings income and dividends to the max. So married couples and civil partners should look to make the most of their £500 or £1,000 personal savings allowances, as well as ensuring they have sufficient dividends to use their £2,000 dividend allowances.
You then need to look at your pension contributions, which can impact on your overall taxable income. If you are a higher rate taxpayer and are in a position to do so, you should use contributions to pensions to reduce your taxable income to below £150,000 to avoid 45% tax.
You should also remember that the personal allowance is gradually withdrawn for individuals with income above £100,000. If your income is above £100,000, pension contributions could possibly reduce your income to £100,000 to restore your personal allowance, which would otherwise be lost. Remember that you can carry forward unused allowances for the last three tax years. Your contribution limit is £40,000 for the year.
Again, if you are in a position to do so, you could consider making a net contribution of up to £2,880 (£3,600 gross) each year for members of your family, including children and grandchildren, who do not have relevant UK earnings. The £720 basic rate tax relief is a significant benefit and the earlier this is started, the more they will benefit from compounded tax-free returns.
You should also be thinking about your potential inheritance tax (IHT) bill. Each individual has an annual exemption allowing you to gift up to £3,000 each tax year. You can also carry over any unused allowance from the previous year, enabling you to potentially gift up to £6,000 in any one tax year. These gifts, along with the small gifts allowance of £250 per person, are immediately IHT exempt.
Finally, you may want to look at your capital gains tax situation. Each individual can realise capital gains of £11,700 completely free of capital gains tax (CGT), which means a married couple can realise gains of £23,400 free of CGT. In most cases, any transfers of assets between married couples are free of both inheritance tax and capital gains tax and so this option should be considered where both annual exemptions can be used. You may also have capital losses carried forward from earlier years to use.
There are several ways to reduce CGT bills, including the ‘bed and ISA’ option. This allows investors to sell investments or assets, use their annual CGT exemption and then buy the assets back within a tax-efficient Isa in the new tax year, thereby ‘washing’ out the capital gains. The process sounds simple but it may not be, and there are issues such as the 30-day rule to take into account, so getting financial advice often makes sense.
There are only a couple of weeks left in the current tax year in which to act and this article only covers some of the more obvious options. Tax planning is a complex area, so if you think you may need help before this year’s deadline, talk to us. We’d be delighted to help you with your tax planning needs.
This article is for information purposes only and should not be considered investment advice or an offer of any security for sale. Nor does it represent a recommendation of any particular security, strategy or investment product. Taxation reliefs, levels and bases can change in the future and the contents of this website refer to our understanding of current taxation legislation. Tax is dependent on your own personal situation and circumstances and is subject to change based on UK legislation and taxation regime.