1. Have you used your 2018/2019 ISA allowance yet or have you considered making any other tax-efficient investments before 6 April 2019?
Individual savings accounts (ISA’s)
Each tax year you can invest up to £20,000 in cash, stocks and shares and innovative finance ISAs. This limit will stay the same for 2019/2020 tax year.
If you are aged 18 to 39, you can also start to invest up to £4,000 in a lifetime ISA and can continue to each tax year until you are aged 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. You can use these savings to help buy a first home or keep the funds for retirement.
Enterprise investment schemes (EIS)
Enterprise investment schemes (EIS) give tax relief up to 30% for investments up £1million in new shares in relatively small qualifying trading companies that are not listed on any stock exchange.
Venture capital trusts (VCT)
You can get income tax relief of 30% by subscribing up to £200,000 for shares in venture capital trusts (VCTs) in 2018/2019. Gains are generally exempt from CGT. VCTs are investment trusts that invest in a range of relatively small trading companies.
2. If you are aged over 55, are you aware of the options for drawing your pension savings?
When you come to take your pension benefits, up to a quarter of the fund is normally tax free, but the pension income will be taxable.
Most people aged 55 and over can draw their pension savings flexibly. Withdrawals above the tax-free amount are added to your other income and taxed accordingly. You should take advice before accessing pension savings as there are several options and they will generally have a long-term effect on your financial position. It is possible to access the tax free element without drawing any taxable income for as long as you like. Please contact us if you would like to take advantage.
If you’ve already taken money from your pension savings during the 2018/2019 tax year and have funds just over the current £1.03 million lifetime limit, you might want to delay taking benefits until after 5 April 2019.
3. Don’t forget to consider the timing that you receive dividends and bonuses to minimise tax rates
With the exception of dividends, income over £150,000 is taxed at 45%. You might be able to avoid this additional rate by delaying a bonus until 2019/2020 or you could bring forward income into 2018/2019 to avoid the additional rate next year.
4. Have you used your annual Capital Gains Tax (CGT) exempt amount yet for 2018/2019?
Everyone has an annual capital gains tax (CGT) exempt amount, which in 2018/2019 makes the first £11,700 of gains free of tax, this will rise to £12,000 in 2019/2020.
5. Are you investing enough in your pension? Have you used up your 2018/2019 pension allowance?
Investing in a pension plan is usually worthwhile because of the tax privileges. Pension funds are broadly free of UK tax on their capital gains and investment income. There is an annual limit of £40,000 on pension contributions although this limit is tapered down to a minimum of £10,000 if your income exceeds £150,000. You can, however, carry forward unused annual allowances for up to three years to offset against a contribution of more than the annual limit. For people already drawing a flexible income from a pension, the annual allowance is £4,000.
6. Have you made gifts to use your annual inheritance tax allowances?
Gifts totalling up to £3,000 in a tax year are exempt from Inheritance Tax. If you made no gifts in 2017/2018, you can make IHT-free gifts of up to £6,000 before 6 April 2019. If you have already used your exemption for 2018/19, you could delay your next gift until after 5 April 2019 to take advantage of the 2019/20 exemption.
7. Could you be exempt half of this year’s or last year’s capital gains by reinvesting the gains in a Seed enterprise investment schemes (SEIS)?
Through investing in seed enterprise investment scheme (SEIS), individuals can get 50% income tax relief on investments of up to £100,000 each year in start-up companies.
8. Have you considered the income tax savings available in 2018/2019 for couples and child benefit?
If you’re in a couple, you might be able to save tax by switching income from one spouse or partner to the other. Each tax year you should make use of both individuals’ personal income allowances (£11,850 in 2018/2019 and £12,500 in 2019/2020) to help minimise paying any higher and additional rate tax.
Income over £150,000 is taxed at 45%, and the personal allowance is withdrawn where income (less certain deductions) is more than £100,000. You and your partner might be able to reorganise your financial affairs to avoid exceeding one of these limits.
Similarly, child benefit is, in effect, withdrawn where either partner has income of £50,000 or more. You may be able to keep some or all of your child benefit by switching income between you and your partner.