Year End Tax Planning Tips for 2018/19
As the financial year end rolls in, all thoughts turn to tax payments. Getting up to date with any tax allowances, capital gains, your pension, and your investments could help you to make savings and reduce your 2018/19 tax bill. Follow the LWA year-end tax tips to make sure you’re accessing the allowances and savings your entitled to, so you don’t end up losing out.
DON’T LOSE YOUR PERSONAL ALLOWANCE! For every £2 that your adjusted net income exceeds £100,000, the £11,850 personal allowance is reduced by £1. 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. Another way that you could avoid this trap would be to agree 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 would 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. It is worth noting that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current on the condition you were a member of a scheme in the earlier years, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. 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.
NEW WORKPLACE PENSION LIMITS FROM 6 APRIL 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%.
HAVE YOU USED YOUR 2018/19 ISA ALLOWANCE? Your maximum annual investment in ISAs for 2018/19 is £20,000. Your 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 percent 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 which 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 which 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 and we can assist you in keeping the necessary documentation. If you need more advice to ensure you’re accessing everything you’re entitled to this year end find out more about our corporate and personal tax services or speak to our expert team in Warrington on 01925 830 830 or call our Manchester office on 0161 905 1801.