Its that time of year again, just a couple of weeks left before the tax year end. There are a few things to consider before the 5th April.
Don’t Lose your Personal Allowance
The personal allowance of £11,850 is reduced by £1 for every £2 that your adjusted net income exceeds £100,000. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.
The restriction applies between £100,000 and £123,700 adjusted net income. You can potentially avoid this by agreeing with your employer to sacrifice some of your salary in exchange for a tax free benefit in kind. These rules changed from 6 April 2017 but employer pension contributions, bicycles, and employer provided childcare continue to be tax effective.
Year End Pension Planning
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer.
Any unused allowance for a particular tax year can be carried forward for three years. It can be added to the relief or the current, but then lapses if unused. For instance the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000. But there continue to be rumours that this generous relief may be reduced in future.
Have you used your 2018/19 ISA Allowance?
Your maximum annual investment in ISAs for 2018/19 is £20,000. Investment needs to be made before 6 April 2019! In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2018/19 tax year, you can invest £4,260 into a Junior ISA for any child under 18.
Consider other Tax Efficient Investments
If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off of 30% of the amount invested against your income tax bill as well as the ability to defer Capital Gains Tax (CGT) until the shares are sold.
An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2018/19 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after 3 years. Note however that qualifying EIS and Seed EIS companies tend to be risky investments so professional investment advice should be taken.
A 30% income tax break is also available by investing in a Venture Capital Trust.
Year End Capital Tax Planning
Have you used your 2018/19 £11,700 annual capital gains exemption? Consider selling shares where the gain is less than £11,700 before 6 April 2019. In addition, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances. This could save income tax of up to 45% of the loss.
As far as Inheritance Tax (IHT) planning is concerned, all individuals have a £3,000 annual allowance. This means that gifts up to that amount each year are exempt from IHT. If you have not used your £3,000 allowance from 2017/18 you can make gifts of up to £6,000 before 6 April 2019 without the gift being liable to IHT. Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured. We can assist you keeping the necessary documentation.
Don’t forget… New Workplace Pension Limits from April 6th 2019
The amounts that employers and workers will be required to pay into workplace pensions are due to increase from 6 April unless the worker opts out. The new limits will be 5% from the worker and 3% from the employer. The total minimum contribution will therefore increase from the current 5% overall to 8%.
In some schemes, your employer has the option to pay in more than the legal minimum. In these schemes, you can pay in less as long as your employer puts in enough to meet the total minimum contribution of 8%.
If you would like to chat about any of the above, give us a call on 01332 292022. Or drop us an e-mail to firstname.lastname@example.org. We’d love to hear from you!