With the end of the tax year approaching now is the time to review your tax position. We have set out below a few common pointers which should be considered by 5 April 2018.
• PERSONAL ALLOWANCES AND RELIEFS
This is the last year the £5,000 dividend allowance (a band in which dividends are taxed at 0%) is available. From 6 April 2018, the dividend allowance reduces to £2,000. Are there opportunities to utilise any unused allowances before the end of the tax year?
Adults can invest up to £20,000 per tax year into an ISA. If you don’t already have an ISA, should you start one this tax year or should you utilise the maximum tax-free investment allowance if you already have one?
• PROPERTY INCOME
From 6 April 2018 the second phase of the new mortgage interest restrictions will come in to effect, meaning 50% of mortgage interest will now be restricted to only basic rate tax relief with a further 25% being restricted in each of the two following years.
• PENSION CONTRIBUTIONS
The annual allowance is currently £40,000 for those with yearly income from all sources plus pension contributions of less than £150,000 in total. Contributions may be restricted by reference to net relevant earnings and the annual allowance. Should you increase your pension contributions or make use of your allowances before the tax year ends?
• INHERITANCE TAX
Are you taking advantage of exemptions, such as the annual £3,000 exemption, gifts out of income, and gifts on marriage or civil partnership?
• CAPITAL GAINS TAX
Ordinarily, each person is entitled to make a tax-free gain up to £11,300 (or up to £5,650 for trusts) during 2017/18. Should you be utilising this allowance before the end of the tax year, as once the tax year is over this allowance is lost. It may therefore be beneficial to split any sales over tax years to fully utilise your allowances and reduce your tax exposure. You can also gift assets to your spouse to utilise their allowance.
• INCOME TAX AND CAPITAL GAINS TAX RELIEFS
By subscribing for shares via approved EIS and SEED EIS investments a number of income tax and capital gains tax reliefs are available including income tax relief at 30% and 50% respectively. Capital gains tax deferral is also available when reinvesting gains from the sale of other assets. Conditions apply and such investments have an associated risk.
• BUSINESS DEDUCTIONS
Business owners are entitled to claim deductions from income for costs, which are incurred wholly and exclusively in running the business. Pension contributions are an allowable deduction but must be paid before the year-end to get tax relief in the accounting period.
Have you missed the income tax filing deadline? If so, you are liable for a £100 fine. Leave it for another three months and the maximum penalty rises by £10 a day up to a maximum of £900. Other penalties apply after six and twelve months – do you need assistance with your return in order to minimise these penalties?
• UPCOMING CHANGES
The personal allowance for 2018/19 is £11,850. The basic rate band threshold increases to £34,500 in 2018/19, meaning individuals who are entitled to the full personal allowance will not be liable for higher rate tax until their total income exceeds £46,350.
If you’d like to consider your tax position and options including any of the above please contact us on 01892 507288 to arrange a meeting.