As another tax year draws to a close, now is a good time to take stock and consider whether all allowances and reliefs have been maximised as far as possible and whether any action needs to be taken pre 6 April 2019.
Below are some of our top tips to consider in advance of the new tax year.
Personal allowance – for higher earners, the personal allowance is reduced by £1 for every £2, meaning those with net income of between £100,000 and £123,700 could end up paying tax at an effective rate of 60%. If your income is close to the threshold it may be worth considering possible ways to reduce your taxable income e.g. by making pension contributions, charitable donations, deferring income into 2019/20 or transferring income producing assets to your spouse.
High Income Child Benefit Charge – taxable income exceeding £50,000 for the year could lead to a claw back of child benefit with the benefit lost in full once taxable income reaches £60,000. Reducing, deferring or transferring taxable income as described under ‘personal allowance’ above could help to preserve this benefit.
Capital gains - The capital gains tax annual exemption for 2018/19 is £11,700. Some simple planning to utilise your allowance as far as possible could include considering a transfer of assets between spouses, where appropriate. If the annual allowance has already been used, consideration could be given to deferring disposals into the new tax year, with the allowance increasing to £12,000 for 2019/20.
Residence nil rate band (RNRB) – the RNRB is an additional inheritance tax nil rate band which is available on death when a residence is passed to a direct descendent. The RNRB increases by £25,000 to £150,000 from April 2019 and double that for a couple. The allowance is tapered away, however, for estates valued over £2 million. We would recommend a review of your Will to ensure this and any other inheritance tax reliefs will be available, as well as considering planning to reduce your estate value if appropriate.
Mortgage interest relief – as the phasing in of the rules continue, 75% of interest costs will be restricted to the basic rate of tax for landlords from April 2019 which could lead to a significant increase in effective tax rates for some. A review of your operating structure would be advisable and opportunities to minimise the impact of the new rules could be explored including spousal transfers, use of partnerships or incorporation.
Remuneration for owner managed businesses – director/shareholders should review their remuneration package in advance of the new tax year. A combination of low salary, high interest and high dividends could result in tax-free income of up to £19,850 in 2018/19 and £20,500 in 2019/20 (and double that for couples) depending on the specific facts and circumstances of the individual.
Tax efficient investments – if you have any surplus cash, you could look to make a tax efficient investment. There are various options which typically offer income tax relief at 30% (and up to 50%), with tax free capital gains on disposal. It may also be possible to carry back an investment made in 2017/18 to 2016/17 to accelerate tax relief. Certain conditions must be met to obtain the available tax reliefs which would need to be carefully considered.