TT292: Year End Tax Planning – 2018/19
‘When it’s gone, it’s gone’! After 5th April, it is simply too late to put certain tax strategies in place. We have just a few weeks left in the tax year 2018/19 and it is important to consider strategies that could be deployed to save on cash that would otherwise go to the taxman, such as the following.
Pensions – For pension contributions, the annual allowance is £40,000, although this limit covers the aggregate of personal contributions (grossed up for basic rate tax relief at source) and employer contributions (the combination is known as the “pension input amount”). However, for those with high income, there is a tapering of the annual allowance of, broadly, £1 of allowance for every £2 of excess income over £150,000, down to a minimum annual allowance of £10,000. Income for this purpose includes employer pension contributions! Where the pension input amount exceeds the tapered annual allowance, there is an income tax charge on that excess.
However, taper applies only from the tax year 2016/17 onwards and with the ability to carry forward up to three years of untapered relief, this is the last chance to carry forward any unused 2015/16 allowance.
Corporate contributions into a pension arrangement attract corporation tax relief, and investments within a scheme grow without the imposition of income tax or capital gains tax.
ISAs – On the investment theme, the tax year end is always a good opportunity to review your ISA allowance. Any income or capital gains within an ISA are tax exempt and each individual can invest up to £20,000 in the tax year 2018/19.
Children (over 18) – Have they utilised their personal allowances for the year? Are the shareholders in your company and could they receive dividends? It is also possible to contribute up to £2,880 towards a pension for a non-earning child (or spouse), and the government will add 25% (£720) as a tax-free enhancement. This also applies to self-employed individuals.
It is possible to contribute to a child’s Life Time Individual Saver’s account (LISA). An enhancement of 25% will again be added by the government upon the child acquiring their first property.
Tax Advantageous Investments – Now is also the time to consider investments in the two most tax-advantaged types of scheme; the EIS and SEIS. A 30% (EIS) or 50% (SEIS) tax credit can be set off against your tax liability. You can carry back the relief to the previous year. In addition, the shares should qualify for CGT exemption, IHT relief after 2 years, deferral (EIS) or 50% reduction (SEIS) of capital gains on any asset and income tax relief should there be a loss on the shares.
Capital Gains – Consider your share portfolio and whether it would be beneficial to liquidate certain stocks to utilise one’s Annual Exempt Allowance of £11,500. Also, to possibly liquidate stock losses to offset otherwise chargeable gains.
Dividends – Don’t forget the £2,000 nil rate allowance still applies to dividends. If you, or family members, have not received any dividends at all in the present year it may be an opportunity to vote some from your personal company.
PAYE Tax Code – HMRC may include estimates of savings or investment income within your tax code for the new tax year. If so, we suggest advising HMRC of the correct code so that tax on investment income is dealt with more appropriately through the self-assessment return, with tax paid later in the year.
IHT and Gifts – A £3,000 annual exemption from IHT exists for gifts. If the annual exemption was not used in the previous year, then £6,000 can be gifted. A husband and wife or civil partner each have their own exempt amount, therefore a couple can give £12,000 away exempt from IHT. Also, regular gifts made out of income (the difference between net income earned and gross personal expenditure) can be entirely free of IHT and does not rank as a potentially exempt transfer.
As always, it is important to maintain contact with your Barnes Roffe liaison partner, who will always be available to discuss appropriate strategies.