We are rapidly approaching the end of the 2018-19 tax year and now is the last chance to review your tax situation and make any tax efficient changes. Acting now could save you tax, but you will need to hurry.
See below for our top tips to help save you tax:
Make the most of your tax-free allowances
Personal savings allowance – the first £1,000 of interest from savings and investments is tax free if you are a basic rate taxpayer. If you are a higher rate tax payer this is reduced to £500. This means you only pay tax on interest in excess of this allowance. Unfortunately, there is no allowance if you are an additional rate tax payer.
Capital gains tax allowance – you can make gains of up to the allowance of £11,700 and pay no tax.
Marriage personal allowance – If you are married or in a civil partnership and one partner has an income lower than their personal allowance, they can transfer £1,190 of their personal allowance to their partner, providing they are a basic rate tax payer.
Dividend allowance - £2,000 of dividends can be received without paying tax in 2018-19, regardless of whether you are a basic, higher or additional rate tax payer.
Use your ISA’s to the maximum
In 2018-19 the annual limit to pay into an ISA is £20,000. This can be all cash, all stocks and shares or a mix of both. Interest and dividends are tax free and there is no capital gains tax on the sale of the stocks and shares.
Make personal pension contributions or gift aid donations
If you are a higher or additional rate taxpayer you can increase your basic rate band by the gross amount of pension contributions or gift aid donations you pay.
Preserve your personal allowance if your income is over £100,000
If you are a higher rate taxpayer earning over £100,000, your personal allowance will be reduced by £1 for every £2 you earn over this amount. So, if your income is over £123,700 you will no longer receive a personal allowance. The basis for calculating your income is earnings, less personal pension contributions less gift aid donations. It is, therefore, possible to preserve some or all of your personal allowance by making pension and charity donations which also extends your basic rate band as above.
Transfer income generating assets to your spouse if they pay a lower rate of tax than you
Make EIS/SEIS/VCT investments
If you are not risk adverse, you might like to consider investing in EIS, SEIS or VCT investment schemes. These schemes are designed to help smaller, high risk companies raise finance by offering tax relief on new shares in those companies that qualify. The investor receives tax relief on their investment through their self-assessment tax return.
At present these reliefs are:
EIS 30% relief on up to £1m invested
SEIS 50% relief on up to £100k invested
VCT 30% relief on up to £200k invested
EIS/SEIS investments must be held for 3 years and VCT for 5 years. There is the additional benefit of no capital gains tax on sales of shares held for the qualifying period.
For more information, please contact Anne-Marie Rickels, Tax Manager