Friday, March 29th, 2019
At Copia Wealth & Tax Limited, we like to make sure our clients have done all they can to utilise allowances and avoid tax traps before the now imminent end of the tax year.
With that in mind, here are a few timely reminders just in case you have forgotten anything!
For every £2 that your adjusted net income exceeds £100,000, your £11,850 personal allowance is reduced by £1. This restriction applies between £100,000 and £123,700 adjusted net income, meaning your effective tax rate in that band is 60%!
The use of pension contributions and Gift Aid can help to reduce adjusted net income and save tax. Alternatively, you could avoid this trap by agreeing with your employer to sacrifice some of your salary in exchange for a tax-free benefit in kind. These rules became more restrictive from 6 April 2017, but employer pension contributions, bicycles, and employer provided childcare continue to be tax effective.
Although dependent on earnings, for most taxpayers, the maximum combined contribution permissible by an individual and their employer is £40,000 in each tax year.
Unused allowances in any tax year can be carried forward for up to a maximum of three years and then added to the relief available in the current year. By way of example, any unused pension allowances from 2015/16 cannot be carried forward after 5 April 2019; that is, they will be lost forever.
Under the current rules, the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000, but rumours persist that this generous relief may be reduced in future Budgets.
Your maximum annual investment in ISAs for 2018/19 is £20,000, but if you have ever thought about investing in a Junior ISA for your children or grandchildren (providing they are under 18), you can invest up to £4,260 too. Please note, both investments must be made before 6 April 2019.
If you are looking for investment opportunities, you should consider the Enterprise Investment Scheme (EIS). These investments in certain qualifying companies allow you to set off 30% of the amount invested against your income tax bill, as well as the ability to defer Capital Gains Tax (CGT) until the shares are sold.
There is an even more generous tax break available for investment in a qualifying Seed EIS company, where income tax relief at 50 % is available and, in addition, it is possible to obtain relief against your 2018/19 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after three years. Remember that qualifying EIS and Seed EIS companies tend to be risky investments so professional investment advice should be taken.
For those considering an investment in a Venture Capital Trust, a 30% income tax break is also available.
For 2018/19, you have an annual capital gains exemption of £11,700, so make sure you take full advantage it! You could, for example, consider selling shares before 6 April 2019 where the gain is likely to be less than £11,700.
Also, if you have any shares that are worthless, consider making a “negligible value claim” to establish a capital loss in the tax year. Under certain circumstances, you may even be able to save income tax of up to 45% by setting that capital loss against your income. Please contact us for more details.
As far as Inheritance Tax (IHT) planning is concerned, all individuals have a £3,000 annual allowance which means that gifts up to that amount each year are exempt from IHT. If you have not used your £3,000 allowance from 2017/18, you can make gifts of up to £6,000 before 6 April 2019 without the gift being liable to IHT.
There is also the option to make regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured and we can assist you with keeping the necessary documentation.
Here at Copia Wealth & Tax Limited Wolverhampton, we undertake periodic tax reviews with our clients to update them so that they can then plan accordingly.
If you too would like help with any of this, please do not hesitate to give us a call on 01902 783172 or alternatively click HERE to complete our website enquiry form and one of our friendly experts will call you back to arrange a convenient time for a confidential no obligation chat.