The importance of year-end tax planning –
what to consider before 5th April 2019.
It is always prudent to review tax planning opportunities to ensure you are maximising allowances and your planning is in line with current fiscal legislation.
Here are a few things to consider:
Consider transferring income-producing assets to a spouse/civil partner paying tax at a lower rate. This enables two tax-free personal allowances, and two basic rate bands (up to £34,500 of the remaining income) to be utilised.
Transferring assets from other relatives to use minor children’s personal allowances and basic rate band, may be appropriate e.g. as part of planning to pay school fees.
Consider holding any interest-bearing investments in the most efficient way possible.
Capital Gains Tax
UK resident individuals can realise
capital gains up to £11,700 free of Capital Gains Tax.
Ownership of an asset can be transferred to a spouse/ civil partner without prompting a tax charge, meaning each individual’s annual exemptions could be used for that disposal.
It is important to review the structure of your portfolio to maximise the reduction in Capital Gains Tax rates where possible.
Pensions Lifetime Allowance
As of 6th April 2018 the Lifetime Allowance has increased to £1,030,000.
The Annual Allowance for tax relief on pension contributions is up to £40,000 depending on earnings. Those with an adjusted income of over £150,000 and
with threshold income over £110,000 have their Annual Allowance restricted on a sliding scale from £40,000 down to a minimum of £10,000.
Excess contributions above an individual’s Annual Allowance are subject to an income tax charge.
It may be possible to carry forward unused allowance from the three previous tax
years, if the current year’s allowance has been used.
Consider making a net contribution of
up to £2,880 (£3,600 gross) for family members including those with no earnings e.g. children.
Individual Savings Accounts (ISAs)
ISAs are an extremely effective means of saving tax-free. The ISA allowance is £20,000. You can save your full allowance into a stocks and shares ISA, a cash ISA, or combination of both.
The limit for Junior ISA and Child Trust fund for 2018/19 tax year is £4,260.
It is important to plan ahead to mitigate inheritance tax and ensure your estate can pass to your beneficiaries efficiently.
The tax-exempt nil rate band will remain frozen at £325,000 until April 2021. Homeowners may benefit from the Residence Nil Rate Band (RNRB): this is in addition to the standard nil rate band. The qualification is that your home must be passed down to your direct descendants, i.e. children, grandchildren.
You can also mitigate any potential inheritance tax liabilities tax efficiently by implementing simple life assurance policies established under a suitable Trust.
It is important to review your Will(s) to ensure that your current wishes are reflected and that you are maximising the inheritance tax relief available.