Year End Tax Planning

The tax year ends on 5 April 2018 and we have set out some points you might like to consider to ensure that you are taking advantage of available reliefs and allowances, before it draws to a close.

Income and Assets

Married couples may want to review how income and assets are allocated between them to take advantage of personal allowances (in 2017/18 £11,500) and minimise tax liabilities at higher and additional rates and avoid the loss of personal allowance.

Savings Allowance

The first £1,000 for basic rate tax payers and £500 for higher rate taxpayers is taxed at 0%. Savings income includes Bank and Building Society interest, but also interest paid by a private limited company. If you have loaned money to your personal company, it may be able to pay you interest to maximise this allowance.

Dividend Allowance

Currently, the first £5,000 of dividend income is taxed at 0%. This allowance is set to drop to £2,000 from 6 April 2018. If you have not yet fully utilised your allowance, it may be beneficial to accelerate dividends into 2017/18 to make full use of the allowance. Also, you could consider gifting dividend producing shares to a spouse or civil partner, to make use of two allowances.

High Income Child Benefit Charge

If you are in receipt of Child Benefit, it may be possible to move income from one spouse to the other so that incomes remain below £50,000 and thus the charge is avoided.

Pension Contributions

A contribution to a pension scheme can be an effective way to reduce taxable income and liability, specifically if your income falls just above one of the thresholds. Contributions within your annual allowance and overall lifetime limit of £1 million attract tax relief at your marginal rate of tax.

Be aware that the annual allowance is tapered by £1 for every £2 of income in excess of £150,000, reducing to a limit of £10,000.

Consider making additional contributions and review whether you have any unused annual allowance for 2014/15, as this will be lost on 6 April 2018.

Contributions of up to £3,600 can be made for a spouse, civil partner, or child if they have no earnings and obtain basic rate tax relief on the investment. For example, if you pay £2,880 into a scheme, HMRC pay in £720, making a total gross contribution of £3,600.

If you have sufficient income, you may wish to think about not drawing your pension and treating it as an IHT wrapper.

Any decisions relating to your pension should ideally be taken in conjunction with financial advice.

Gift Aid

Higher rate taxpayers making Gift Aid payments can claim an extra 20% tax relief on the value of the gift. If you donate say, £80 to charity, the gross value of this to the organisation is £100 and you can claim additional tax relief of 20%, reducing the net cost to £60.

Capital Gains Tax

The annual allowance in 2017/18 is £11,300. This cannot be carried forward, so plan to make disposals by 6 April 2018 to make use of this year’s exemption.

Transfers between spouses and civil partners do not give rise to a CGT charge, so it may be possible to move assets to utilise your partner’s annual exemption or capital losses.

Time disposals to minimise liability. For example, if you are a higher rate tax payer in 2017/18 and your income will fall to basic rate level in 2018/19, delay the disposal until after 5 April 2018.

Inheritance Tax

Consider giving away assets during your lifetime to minimise IHT payable when you die. These gifts will fall outside your estate after seven years. Making a gift now starts the seven year IHT “clock” and after three years the potentially liability on the gift is tapered. Remember, gifting assets can create a CGT charge, so take advice before you give anything away.

If you has income in excess of your normal living expenses, think about making use of the IHT exemption for gifts out of income. Such gifts are tax free, even if death occurs within seven years.

Take advantage of other IHT reliefs such as the annual gift exemption of £3,000 (£6,000 if no gifts were made in 2016/17). The small gift allowance of £250 per done and gifts made on marriage (£5,000 to children, £2,500 to grandchildren and £1,000 to anyone else).

Consider bequests to charity. If 10% or more of your net estate is left to charity the IHT rate falls to 36% on the rest of your estate.

This guide is designed to help you plan. If you need any further advice regarding the above points, or any other tax and accountancy issue, please contact us. It is important to consult us before you take any action as tax planning needs to fit your individual circumstances and tax law is constantly evolving.

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