Yes it’s nearly that time already….. tax year end. The 5th April is the end of the tax year in case you didn’t know, and whilst there is still just under 2 months to go, I thought I would give you plenty of time to make the most of some planning ideas that could save you thousands.
Tax Year End Planning
The current ISA allowance is £20,000 per person. Whatever you put into ISAs will grow tax free, and you could receive tax free dividends and interest from your ISA.
You can only contribute to one Cash ISA and one Stocks and Shares ISA per tax year, but even if you’ve already contributed to a Cash ISA but not the full £20,000, you can put the remaining balance into a new Stocks and Shares ISA.
This really is a case of use it before you lose it!Once the tax year ends you lose this years allowance if not used. A couple with two children over 18 could effectively move £80,000 (4x £20,000) into tax free investments!
This is ideal for company owners or high earners who have a hefty tax bill.
Making a pension contribution will effectively allow you to reclaim or avoid any tax paid on the income needed to make the contribution.
Company owners can make a company pension contribution and this will be treated as an expense for the business and will avoid Corporation Tax.
There are other benefits of making a pension contribution. You can avoid the Child Benefit Tax charge if the contribution brings down your effective earnings under £50,000.
You can even avoid an effective 60% tax charge if you are able to bring your earnings down below £100,000 and reclaim the Personal Allowance.
Do watch out for the Tapered Annual Allowance though if you are earning over £150,000 (including employer pension contributions), as your pension allowance may be reduced.
Capital Gains Tax (CGT) Allowance
Pretty much any investment held outside an ISA or Pension will be subject to CGT on the growth once sold.
One way to avoid this tax charge is to use your CGT allowance each year and gradually move the investment into ISAs.
The current CGT allowance is £11,700 per person.
Consider gifting investments between spouses so you can utilise two lots of CGT allowance.
Although only small, make the use of the £2,000 dividend allowance by taking dividends that are not from investments held in ISAs.
Using Your Personal Allowance
If you’ve retired before reaching your State Pension age then there is a good chance you will no longer earn an ‘income’ and therefore are not using your free Personal Allowance (currently £11,850).
By withdrawing ‘taxable’ income from your personal pension you could make the use of this allowance. Remember, down the line your State Pension is likely to use up your Personal Allowance so now is the chance to get some more money out of your pension tax free!
Pension Lifetime Allowance
Speaking of pensions. We are finding more and more people are hitting or will soon hit the Lifetime Allowance limit on pensions (currently £1,030,000).
If you are in this position you may be able to protect a higher Lifetime Allowance by applying for Fixed Protection or Individual Protection. Please do this before making any withdrawals from your pensions. Better still, please speak to a Financial Adviser as this is a complex area and there can be big penalties if you get it wrong.
Here are some important dates for your diary.
5th April 2019 – Tax year end.
31st October 2019 – Usual deadline for submitting paper self assessment tax returns.
31st January 2020 – Usual deadline for submitting online self assessment tax returns.
October 2019 – The Chancellor’s next Budget is expected around this time but there could be one much sooner depending on what sort of Brexit outcome we have!
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.