Strabens Hall’s Top 10 last-minute planning points for end of tax year 2017/18
As the end of the current tax year draws nearer, we highlight the most pressing and relevant points for you to consider to help save you money.
Income Tax Planning
Where your income falls just above one of the tax brackets, take steps to reduce your taxable income through (for example) pension contributions or Venture Capital Scheme (VCS) investments. The maximum personal savings allowance is just £1,000 and personal earnings allowance £11,500. This amount is progressively withdrawn for earnings over £100,000, and as a consequence, the marginal rate of tax for earnings between £100,000-£123,000 will be 60% .
The first £5,000 of dividends received is tax free. Be sure to make full use of the dividend allowance this year, as the limit is set to fall to just £2,000 from 6th April. Therefore it may be beneficial to make use of dividends before then, or consider transferring dividend-producing shares to a spouse or partner in time.
You can make considerable tax savings when you make pension contributions. 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 pension contributions have been maximised for the current tax year, it is possible to carry forward unused allowances from the previous three tax years. This facility could be especially valuable for additional rate taxpayers now subject to the tapered annual allowance of £10k, as the 14/15 tax year was not subject to this same taper; therefore, if not carried forward, will be lost.
For you, your children, your grandchildren (£20,000 for adults, £4,128 for children up to 18). 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 £11,300) cannot be carried forward or transferred, although assets can be transferred to a spouse. Timing and taxable earning brackets are of significant importance here: 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.
Venture Capital Schemes
Investment into a qualifying EIS or SEIS company can provide 30% or 50% tax relief in this financial year. If you have already made investments this year, you can consider making a carry-back claim to the previous year if you had not reached the relevant limit in this year.
- Enterprise Investment Schemes (EIS)
30% income tax relief is offered on amounts invested into an EIS up to £1m (if shares are held for at least 3 years). Investments made in a tax year can be carried back and treated as though made in the previous year. Capital gains on the disposal of an asset can be deferred by re-investing the gain in qualifying EIS shares and any gains made on EIS shares will be free from CGT”
- Seed Enterprise Investment Schemes (SEIS)
50% tax relief is offered on invested amounts up to £100,000, provided shares are held for at least three years. Investments made in a tax year can be carried back and treated as though made in the previous year. CGT on the disposal of an asset can be made 50% exempt by re-investing those gains into qualifying SEIS shares, if in the same tax year.
- Venture Capital Trusts (VCTs)
30% income tax relief is offered on subscriptions of up to £200k in VCT shares. After five years, these gains are exempt from any CGT. Dividends from VCT investments are also free of income tax and can provide an attractive supplementary income.
Inheritance Tax annual exemptions (IHT)
Make use of exemptions like 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.