Strabens Hall’s last-minute planning points for end of tax year 2018/19
As the end of the current tax year draws nearer, we highlight the most pressing and relevant points for you to consider to help you maximise your finances.
Income Tax Planning
Where your income falls just above one of the tax brackets, take steps to reduce your taxable income through pension contributions. The maximum personal savings allowance is just £1,000 and personal earnings allowance £11,850. This amount is progressively withdrawn for earnings over £100,000, and as a consequence, the marginal rate of tax for earnings between £100,000-£123,700 will be 60%.
The first £2,000 of dividends received is tax free, whilst the tax free threshold was £5,000 in the previous tax year. As such, it is important to be aware of the recent changes to dividend allowances. Nevertheless, dividend tax rates remain attractive – basic rate taxpayers pay 7.5% on dividends, whilst higher rate tax payers pay 32.5% and the additional rate tax rate is 38.1%.
You can make considerable tax savings when you make pension contributions. It is possible to make gross contributions this year of up to £40,000 and children/grandchildren’s pension contributions of up to £3,600. Contributions will be of particular interest if your income is just above one of the income tax thresholds, or your income is between £100,000 and £123,000, as tax relief is available at 60% on income within this bracket.
Once individuals have maximised pension contributions for the current tax year, it is possible to carry forward unused allowances from the previous three tax years, meaning that whilst the annual allowance that can be contributed towards a pension has decreased in recent years it is still possible to make a meaningful lump sum contribution.
Many of our clients find contributing towards a pension for their children and grandchildren a compelling prospect.
This is worth considering not just for your own finances, your children and even your grandchildren (£20,000 for adults, £4,260 for children up to 18) An ISA is a tax efficient account that offers tax-free growth and income, and can provide exposure to a variety of asset classes, including stocks and shares, mainstream bonds, cash and peer-to-peer loans.
Capital Gains Tax (CGT)
The annual exemption (of £11,700) cannot be carried forward or transferred, although assets can be transferred to a spouse. Timing and taxable earning brackets are of significant importance: gains are taxed at 20% above basic rate band (28% on residential property), 10% on any unused basic rate band (18% for residential property or private equity interest) and 10% if qualifying for Entrepreneurs’ relief.
Inheritance Tax annual exemptions (IHT)
Make use of exemptions such as the capacity to make annual gifts of £3,000, which can double if carried back one year (£6,000). The current NRB (Nil Rate Band) is £325,000 for individuals, with all estate assets taxed at 40% thereafter. Additionally, you may wish to consider other forms of planning such as gifting, trusts, qualifying investments and life insurance.
Higher rate tax payers can claim an additional tax relief of 20%, and additional rate tax payers at 25% on the total value of any charitable gift made. Gift aid can be carried back to a previous tax year.
If you would like to speak to an adviser please contact us on 020 7467 4444, or email [email protected]