The Financial Year End Is Fast Approaching
Posted on 24 Jan 2019
With the end of the tax year on 5th April fast approaching, now is the time to consider a few financial planning steps.
Making the most of your tax allowances for Pensions, ISAs, CGT, IHT and Income Tax, is vital to ensuring your financial affairs are organised as efficiently as possible.
To make sure of this, it’s advisable to talk to us as early as possible but ideally no later than mid- February so that any actions and/or transactions can be processed in good time before the financial year end.
As a reminder:
ISA allowances are £20,000 per individual, thus allowing a couple to invest £40,000 between them.
The allowances for a Junior ISA / Child Trust Fund are £4,260 per child.
Bed and ISA
If you don’t have the capital on deposit and have investments which are in taxable investment accounts, then it is possible to do a Bed and ISA. The idea is simple: you sell your non-ISA investments and then use the proceeds to buy them back immediately, but this time within your ISA using your annual tax-free allowance, meaning the assets are out of reach of the taxman.
It is possible to generate capital gains of up to £11,700 this year that will be exempt for capital gains tax, which can assist you with building more of your taxable investments into tax efficient investments. Again, this allowance is per individual.
Any investment gains above this amount will be taxable, at either 10% or 20% dependent on your marginal rate of tax.
The only exception is people selling second properties, including buy-to-let investments. Capital gains on these investments will be charged at 18% for basic rate taxpayers, or 28% for higher and additional rate taxpayers.
The Annual Allowance is currently set at £40,000 per tax year, however your contribution cannot exceed 100% of your earnings unless you have unused relief from previous tax years.
There are some circumstances where an individual’s Annual Allowance will have been reduced to as little as £4,000 per tax year, so it is important to seek advice, as there are tax consequences if you exceed your Annual Allowance.
Making a pension contribution is an effective way of retaining some allowances and saving tax.
The lifetime pensions allowance is currently £1,030,000.
Don’t forget that you can make pension contributions for each of your children and/or grandchildren up to £3,600 gross per annum.
The amount you can earn tax-free before you start paying income tax is £11,850.
A basic rate tax payer will pay 20% on taxable income between £11,850 and £46,350. This means it is possible to earn up to £46,350 before you start paying tax at a rate of 40%.
Where your earnings exceed £100,000, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. This means if you earn more than £123,700 you will lose your tax-free personal allowance.
Where your earnings exceed £150,000, the additional rate of income tax of 45% is charged on all earnings above £150,000.
The dividend allowance is £2,000, so if you don’t have other income you’ll be able to earn £13,850 tax-free when taking into account your personal allowance of £11,850.
The Personal Savings Allowance
You might be able to reduce your tax bill further if you receive income from savings.
Basic rate taxpayers can now earn £1,000 from savings before they start paying income tax on savings income, higher rate taxpayers will only start paying tax on savings income over £500.
There is no savings allowance for additional rate taxpayers.
Each individual is entitled to a £3,000 annual exemption. It may be possible to carry forward any unused annual exemption from the previous tax year so for somebody who has made no gifts, they can make gifts of £6,000 within their annual exemptions now.
What to do next
Get in touch with us and we’ll refer you to an advisor who will guide you through making the most of all your tax-free allowances.
Information correct as at 24th January 2019
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