Time to review tax affairs
As the end of the tax year approaches it’s a good opportunity to review tax affairs to ensure allowable allowances are claimed, writes Fleur Lewis.
- Where income exceeds certain limits, you can pay tax at higher rates and even lose personal allowances. Pension contributions or Gift Aid donations can help reduce taxable income.
- Married couple’s allowance: Transfer 10% of personal allowance to a spouse/civil partner or gift income-producing assets between you and your spouse/civil partner. Such transfers have to be outright gifts without conditions.
- Dividends: There’s an annual £5,000 tax free dividend allowance reducing to £2,000 next year.
- ISA: There is a maximum annual investment of £20,000. You can also invest up to £4,128 in a Junior ISA for a child under 18.
- Basic-rate taxpayers can earn up to £1,000 of interest on savings without having to pay any income tax. Higher-rate taxpayers can earn up to £500 interest tax free.
- Capital gains tax: The annual CGT allowance is £11,300 for 2017/18. If this has not already been used, there may be an opportunity to dispose of assets that could soak this up.
- There are tax incentives for investing in companies such as the Enterprise Investment Scheme and Seed EIS. EIS offers 30% income tax relief and SEIS offers 50%. There is also relief against CGT if you sell the investments, provided you have held them for at least three years. It is possible to carry back qualifying EIS investments to a previous tax year to accelerate tax relief.
- Inheritance Tax: The general annual exemption is £3,000 (plus last year’s £3,000 exemption if you did not use it). Consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT.
If you run a business
- Where your accounting date is the same as the tax year, consider bringing forward expenditure to before the year end to secure earlier relief, subject to commercial considerations.
- Expenditure could include a salary payment to a spouse, as long as it is justifiable for tax purposes. An approved pension could also be established for a spouse. Capital expenditure on equipment for the business of up to £200,000 can be 100% relieved under the Annual Investment Allowance.
- Losses from self-employment can be set against other income in the same or previous tax year, subject to an annual cap of £50,000 (or 25% of income if higher). Losses of the first four tax years of trading can be carried back up to three tax years, subject to limits on set-off.
- Adopting a digital accounting solution will help you prepare for Making Tax Digital for VAT from April 2019, and for other taxes to be implemented in 2020 or sometime thereafter.
Depending on circumstances, there may be other tax planning opportunities available. A free factsheet is at: http://bishopfleming.co.uk/tax-planning-final-countdown-5-april-2018/
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