PREPARING FOR THE END OF THE TAX YEARPublished: February 28, 2018 by Jennifer Armstrong
PREPARING FOR THE END OF THE TAX YEAR
1) Personal Savings Allowance
Since 6th April 2016 if you’re a basic rate taxpayer you can earn up to £ 1000 in savings which is free of income tax. This is reduced to £500 for higher rate taxpayers. This means most people no longer pay tax on savings interest.
Here’s a table of how much you’d need in a standard savings account to hit the thresholds (assuming current best-buy rates).
How much can you save per year before interest is taxed?
|Basic-rate taxpayer||Higher-rate taxpayer||Additional-rate taxpayer|
|Top easy access 1.35% AER||£74,000||£37,000||N/A|
|Top 2yr fix 2.1% AER||£47,600||£23,800||N/A|
|Assumes constant balance.|
2) Pension contributions
Again, with effect from April 2016, the annual allowance for pension contributions is £40,000. This is reduced by £1 for £2 where income exceeds £110,000 ( excluding pension contributions). Unused allowance can be brought forward but there are conditions and it’s important to take advice on contribution levels because if you exceed total contribution levels a tax charge will arise, effectively withdrawing tax relief on the excess contribution.
3) ISA Allowance
The ISA allowance per individual for 17/18 is £20,000. If you don’t use it you LOSE it i.e. it can’t be carried forward. ISA’s attract both income tax and capital gains tax benefits. You can invest the full amount before the deadline (5th April) or think about a monthly savings plan to spread the contributions over the next tax year.
4) Capital gains annual exemption
Everyone can realise gains of up to £11,300 in 2017/18 under the annual CGT exemption allowance. This is available up to each individual but any allowance which is not used cannot be carried forward. Married couples and civil partners can transfer assets between them on a no gain/no loss basis and such transfers should be considered to ensure the allowance is fully used. Furthermore, if one spouse is a higher rate taxpayer but the other will not have used his or her basic rate band in full, similar transfers should be considered to ensure at least some of the taxable gain is liable at 10% rather than 20%.
5) Dividend income
Many directors of small and medium sized companies may be facing an increased tax bill following changes to the taxation of dividends. This could be amplified next year when the tax free dividend allowance drops from £5,000 to just £2,000 (2018/2019) A pension contribution could be the best way of paying themselves and cutting their overall tax bill.
And, remember, if the director is over 55 they now have full unrestricted access to their pension savings. Again, it’s important to get financial advice that is tailored to your circumstances.
6) Residence Nil Rate Band
For 2017/2018 an additional IHT nil rate band of £100,000 is available on death where a residence is passed on to a direct descendant. This is tapered away for estates with a net value of more than £2million.
The nil rate band will increase by £25,000 each year to reach a maximum of £175,000 by 2020/2021. Any unused allowance can be transferred to a spouse /civil partner in a similar way to the unused main nil rate band.
7) EIS & SEIS schemes
You could consider investing in a Venture Capital Trust or Enterprise Investment Scheme to benefit from income tax relief at 30% or in a Seed Enterprise Investment Scheme to obtain income tax relief at 50% on the cost of the shares up to the prescribed limits. These are specialist investments which require detailed explanation. Please contact us to discuss further.