Are you ready for the new tax year? While it’s not necessarily a time to say ‘out with the old and in with the new’ it’s still a good time to check whether you’re making the most of your tax allowances and finances.
Stockport based Bennett Verby Accountants are sharing advice about reducing your tax bill, as well as a few tips for you to consider as the new tax year gets under way.
- Make use of dividend allowances
- Utilise your pension contributions (including carry forward amounts)
- Use up your annual exemptions for capital gains tax, inheritance tax and ISAs
- Check your Will to see if you are making use of tax exemptions
There are many tax efficient vehicles with tax-free allowances. A multitude of cash and stocks and shares ISAs are on offer with a tax-free allowance of £20,000 that cannot be carried over past 5 April. You could sell an asset and buy it back within a tax-free vehicle such as an ISA or SIPP (known as a ‘bed and ISA’ or ‘bed and SIPP’).
SEIS/EIS/VCT investments may qualify for income tax relief and on disposal the shares may be exempt from CGT if held for three years in the case of EIS investments and five years for VCTs. EIS and VCT investments qualify for 30% income tax relief and SEIS investment can save 50% tax on the amount invested (up to £100,000 per annum). A further 50% relief is given against other capital gains made in the year.
Businesses should review their shareholder income structure and spouse allowances to make use of the Income Tax Personal Savings Allowance for basic and higher rate taxpayers, as well as charging interest on loans made to the company. Try to declare up to the £2,000 tax-free allowance on dividend income for each shareholder by 5 April 2019 to take advantage of dividend allowances.
Capital gains tax allowances
You should look through your investments and see if you can utilise your spouse’s and your own capital gains tax allowances of £11,700 each. If you sell assets at a loss in the same tax year as gains, you can ‘crystallise’ the loss and bring down your tax bill. CGT is based on the amount of income tax paid, so you might consider reducing your taxable income by changing from earnings to pension income; salary sacrifice through pension contributions or childcare vouchers, deferring the state pension or transferring taxable income bearing assets such as cash deposits to a lower earning spouse.
When considering inheritance tax, you should review your spending and establish a regular set of gifts from your income to use your annual exemptions and reduce your estate. You can give away £3,000 per annum which is exempt from inheritance tax, plus wedding or civil ceremony gifts, gifts to help with another person’s living costs, gifts to charities and political parties, and normal gifts out of your income, as long as doing so doesn’t affect your quality of life. You can also give small gifts of up to £250 as long as you have not used another exemption on this person.
Residential property letting
If you are a landlord, you should look at the rules around residential property letting and review your assets and borrowings. Currently, 50% of finance costs can be offset against rental income and the other 50% is relievable at the basic rate of 20%. From 6 April 2019 only 25% of costs will be relievable at the marginal rate and 75% at basic rate. From 2020, there will be no offset and all finance costs will be relievable at 20%. Furnished holiday lets do not apply, but there are strict rules around these. If you rent out a driveway space or a room via Airbnb, you get a £1,000 tax-free allowance for both. Rent a room relief is open to owner occupiers or tenants who let out furnished accommodation to a lodger in their main home and allows you to earn up to £7,500 a year tax free.
Pension contributions for high earners continue to be restricted although you should look at using up unused allowances (once your current year’s allowances are used), as they lapse after three years. If your income is around £60,000 these contributions, charitable donations and contributions to your pension may take your income figure below the ‘adjusted net income limit’ for the government to claw back child benefit. Similarly if your income is around £100,000 you could use pension contributions to maximise your personal allowances. Don’t forget you can also make pension contributions for children and grandchildren of £2,880 net, grossing up to £3,600.
Key dates in 2019
1 March During March, NS&I are implementing changes to the rules around Premium Bonds. The minimum savings amount will be cut from £100 (or £50 by standing order) to £25 for both one-off purchases and standing orders.
13 March The Chancellor’s Spring Statement, used by the Chancellor to respond to new economic forecasts and to discuss long-term issues ahead of the Autumn Budget. However, with just over two weeks until Britain’s exit from the EU, expectations are that the Chancellor will deliver an emergency Budget if the UK leaves the EU without a Brexit deal.
29 March Brexit day. Financial forecasters are predicting doom and gloom for the pound, the housing and stock markets and a slowdown of global GDP. With the manner of our exit from the EU still up in the air, we may dramatically crash out, or mince out of the door backwards in the manner of someone who’s accidentally sat on a trifle.
1 April The National Living Wage and Minimum Wage for all ages will increase.
5 April The last day of the tax year to take advantage of tax allowances. Subscribe to our newsletter here for our guide to end of tax year savings – but don’t leave it until 5 April!
6 April The beginning of the new tax year will bring more money in millions of people’s pockets via the raise in basic personal tax allowance in England and Wales from £11,850 to £12,500 and higher rate from £46,350 to £50,000. However, payslips may be slightly depleted by changes in auto-enrolment making increases to pension payments. The lifetime allowance for pension savings rises to £1,055,000. State pensions will rise by £3.25 for basic state pensions and £4.25 for the new full state pension.
1 May NS&I index-linked savings certificates will now be linked to the consumer prices index rather than the retail prices index, which means certificate holders will lose out as the CPI is lower than the RPI.
29 August The deadline for complaining about mis-sold payment protection insurance or PPI (and hopefully an end to some of the nuisance calls received on a daily basis).
30 November Help to buy ISAs will no longer be available to new savers. Current holders can continue to save into a Help to Buy ISA and have until 1 December 2030 to claim their government bonus of £50 for every £200 they save.
Also, don’t forget your monthly tax reporting dates and deadlines for PAYE/NIC, student loan and CIS deductions.
There is a lot to consider before April.
Expert Opinion provided by Bennett Verby