Yet another tax year is drawing to a close, so now is an ideal time to take stock and ensure that you have maximised reliefs and minimised tax as far as possible for the current year, as well as considering remuneration planning for the 2018/19 tax year.
We look at changes in legislation and our top five tax tips to plan for these as well as highlighting a further five tax planning ideas based on existing rules.
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Who is affected? |
Description |
Action to take? |
1 |
Shareholders |
The dividend allowance is reducing from £5,000 to £2,000 from April 2018. |
Consider accelerating dividends into 2017/18 where viable and a review of remuneration for the 2018/19 tax year to take into account the reduced allowance. Spouse planning may also need to be considered. |
2 |
Property Owners |
Phasing in of the restrictions on mortgage interest deductions for landlords continues. April 2018 will see 50% of mortgage interest deductions restricted to the basic rate. |
Consider ways to minimise the impact of the new rules including incorporation, spousal transfers, use of partnerships etc. |
3 |
Low income sole traders/ property owners |
Two new £1,000 tax free allowances are available for 2017-18 for property or trading income.
If your gross property and/or trading income is below £1,000, you will no longer need to file a tax return. If you have income above this level, you may be able to offset this allowance rather than actual expenses incurred.
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A review of your eligibility to claim the allowances and, if so, whether your tax liability will reduce as a result.
Could also consider transfers of an interest in property to a spouse/family member to utilise the property allowance.
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4 |
Individuals |
From April 2018, the new residence nil rate band increases to £125,000 (£100,000 2017/18). This will be available on death when a residence is passed to a direct descendent. The allowance is, however, tapered away for estates valued over £2million |
We would recommend a review of your Will to ensure this and any other tax reliefs will be available, as well as considering any planning to reduce your estate where appropriate. |
5 |
Individuals/ investors |
New rules will be introduced to restrict the tax relief for certain investments (in EIS, SEIS and VCT schemes) where there is a ‘low risk’ of losing the capital investment |
If you have any surplus cash, tax efficient investments could be considered which offer income tax relief at 30% or higher and tax free capital gains on disposal. The new rules apply to new investments on or after the date of Royal Assent of the current Finance Bill, so any investments should be checked to ensure the tax relief will still be available. |
6 |
Savers |
The ISA allowance for 2017/18 is £20,000 which can be split between stocks and shares, cash and up to £4,000 in a lifetime ISA. |
Although the investment itself doesn’t attract any tax relief, any income generated from it will be tax free.
The government will add a 25% bonus on the lifetime ISA, subject to certain conditions being satisfied.
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7 |
Higher earners |
The personal allowance is reduced by £1 for every £2 of net income over £100,000, those with income of between £100,000 and £122,000 could end up paying tax at an effective rate of 60% |
If your income is close to the threshold, it may be worth considering ways to reduce your taxable income. This could be achieved by making pension contributions, charitable donations, deferring income into 2018/19 or transferring income producing assets to your spouse. |
8 |
Parents |
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 under ‘2’ above, could help to preserve this benefit. |
9 |
Individuals |
The capital gains tax annual exemption for 2017/18 is £11,300. |
Try to utilise your allowance as much as possible. Consideration should be given to the transfer of assets between spouses, such that both utilise their annual exemptions on a subsequent disposal |
10 |
Owner managed businesses |
A review of your remuneration package in advance of the new 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. |
For further information, please get in touch with a member of our tax team.