Tax Planning – 2018/19 year end
As of today (26th February 2019) there are only 38 days left in the current tax year. It seems many of us have just completed our tax returns for last year, but if we want to improve our tax planning, it’s VITAL to take action now. You still have time to make the most of the current year’s allowances, but the clock is ticking.
As independent financial planners, we can help with a wide range of matters, and some of these are summarised below.
Make sure you’re reviewing your remuneration
If you’re a business owner, you could start by structuring payments from your business, to make sure you take advantage of the £2,000 dividend tax allowance, which became effective from last April. For dividend payments over the allowance, there’s a dividend tax of 7.5% for basic rate taxpayers, 32.5% for higher rate, and 38.1% for those with taxable income over £150,000.
Make sure your salary is correct, so that you qualify for National Insurance credits – these are needed for State Pensions. If you pay your salary at the correct level, you’ll be credited with National Insurance payments, even if you don’t actually pay anything!
As with every year, you should ideally ensure that your taxable income doesn’t fall within the band of £100,000 to £123,700 – in this bracket you’ll lose some or all of your personal allowance, meaning that the effective income tax rate could be 60%!
Consider Pension Contributions
Review the opportunity to make pension contributions, either personally or via your business.
As well as this year’s annual allowance of £40,000, you may be able to invest previous years unused allowances, making a total possible contribution of up to £160,000 per person. However, if your total taxable income is £110,000 or more, you’ll need to be careful. Regulations may restrict your annual allowances, possibly to as little as £10,000 for the year. Planning now could help you avoid these restrictions, or at least avoid a tax charge for contributing too much.
Please also take note of the Lifetime Allowance – a limit on the value of your pension savings – this is currently set at £1.03m. Bear in mind the effect any new contributions could have on your pension value, and keep in mind that, if you already have Lifetime Allowance Protection in place, this could be lost if you make further contributions.
Don’t forget ISAs
Leaving aside pensions, the annual ISA limit is £20,000 for this year. Just a reminder – all income and capital gains within an ISA are free of income and capital gains tax, so these could be a great way of saving flexibly for your future. However it’s use it or lose it – if you don’t invest by 5th April, you can’t carry your allowances forward.
Capital Gains Tax Allowances
It’s a similar situation with Capital Gains Tax – every individual has an annual exemption of £11,700 for the 2018/19 tax year. If you don’t use it you lose it. You can sell assets such as shares or property, make a gain of up to £11,700, and have no CGT liability. (assuming you have no other capital disposals in the year). In some cases you could immediately reinvest using your ISA allowance, avoiding further tax on gains (or dividends) in the future.
Act Now, save now
So the clock’s ticking – prepare now, and check whether any of these tax planning ideas are of use for your own circumstances. If so, let us know if we can help.
This document is intended to provide a broad scope of matters you may wish to consider when reviewing your tax planning. You should not consider this to be definitive advice regarding your own circumstances, and Vital Wealth Management can accept no responsibility for your acting, or refraining from action, based on the contents of this document. We would of course be happy to provide advice regarding your own specific circumstances.Tax benefits are subject to possible future legislation change and depend upon your own individual circumstances. Any reference to legislation and taxation is based on our understanding of law and Her Majesty’s Revenue and Customs practice at the date of publication (February 2019). Legislation and taxation are liable to change in the future.