Dividends
The tax free allowance on dividend income drops from £5,000 to £2,000 on 6 April 2018. Owners of incorporated practices should ensure that full advantage has been taken by declaring and paying dividends before then.
Preserving personal allowances
High earners with income over £100,000 should be aware that their personal allowance is reduced by £1 for every £2 of net income over £100,000. This means anyone with income between £100,000 and £122,000 could be paying tax at an effective rate of 60%. If your income is close to the threshold you can reduce your taxable income by making pension contributions, charitable donations, investing into tax relievable investments such as Venture Capital Trusts or Enterprise Incentive Scheme, or transferring income producing assets between spouses.
Higher rate child benefit charge
Taxable income exceeding £50,000 for the year could lead to a claw back of child benefit. Once taxable income reaches £60,000, the benefit will be lost in full. Reducing, deferring or transferring taxable income, as described above for preserving your personal allowance, could help to reduce this charge.
Interest received
The personal savings allowance means that the first £1,000 of savings interest is tax free. This is reduced to £500 for higher rate taxpayers and nil for additional rate taxpayers. Banks no longer deduct interest at source, so it is essential all interest received is identified and relief claimed. Practices may pay interest to directors and partners on their current accounts/directors’ loan accounts to make use of their individual allowances.
Remuneration planning
Incorporated practices should review their remuneration packages in advance of the new tax year. A combination of low salary, high interest and dividends could result in tax free income of up to £22,500 in 2017/18 and £19,850 in 2018/19, (and double that for couples), if structured appropriately and depending on the individual’s circumstances.
Rental income
The phasing in of the restrictions on mortgage interest deductions for landlords continues. From 6 April 2018 we will see 50% of mortgage interest deductions restricted to the basic rate. A review of your eligibility to claim the allowances is recommended to establish whether your tax liability will reduce as a result. Property owners could also consider transferring of an interest in property to a spouse/family member to utilise the new £1,000 property allowance.
To read our year end planning checklist please click here