The Wire: Spring 2019 – Lucky for some! Thirteen things to do before April 5th

Lucky for some! Thirteen things to do before April 5th

Tax year-end is rapidly approaching and there are valuable allowances and opportunities to take advantage of beforehand. Don’t leave it to the last minute; here are thirteen things to best prepare you for 5th April:

1. Set aside time
Initially it’s valuable to reconsider your current circumstances and future aspirations. Set aside a few hours away from the office and family commitments. This can be with or without your partner or financial planner, but a little forethought now will save time later.

You may wish to consider completing a lifetime cash-flow analysis with your financial planner to see if you can afford the lifestyle you want. You can model your plans as well as identifying any risks to achieving your goals, such as early death, long-term illness or a market crash. This can be massively powerful in helping you shape the future.


2. Top up ISAs
Free of Income and Capital Gains Tax, the maximum you can pay into an ISA annually is £20,000. There are various types of ISA, but £20,000 is the maximum contribution permitted between them. Importantly, unlike the pension Annual Allowance, your ISA allowance cannot be carried forward from one tax year to the next, so it should be used in full at every opportunity.

3. Utilise the CGT Annual Exempt Amount
Your annual Capital Gains Tax (CGT) allowance, known as the Annual Exempt Amount (AEA) is currently £11,700. Next tax year it is rising to £12,000, but it’s also worth considering that the scope of CGT will be broadened for non-UK residents, to include disposals of all real estate located in the UK, not just residential property.

4. Use your pension allowance
The maximum you can pay into your pension whilst receiving tax relief is 100% of your taxable salary, up to a maximum of £40,000. Known as the Annual Allowance (AA), there is unfortunately Tapering for high earners. This reduces your AA by £1 for every £2 of income over £150,000 to a minimum of £10,000, and is a measure that applies for a large number of our clients.

Unused AA can often be carried forward from the past three years, increasing the amount you can contribute this tax year. Using your available allowance in its entirety is a tax-efficient way of building retirement income, but it is a use it or lose it situation.

It’s also worth bearing in mind the Lifetime Allowance also, as breaching this can result in additional taxation. In the new tax year it rises from £1.03 million to £1.055 million. If you have already maximised your pension allowances and are looking for an alternative vehicle for retirement savings, a VCT may be appropriate.

5. Consider a VCT or EIS
VCT and EIS investments are becoming more important for high net worth investors who have fully utilised their pension funding allowances. VCTs and EISs generate a 30% Income Tax credit to provide some mitigation for their high risk nature. VCTs additionally have the benefit of dividends being tax-free which can be beneficial when trying to control your tax burden in retirement.

Investing in small businesses also has the potential to produce healthy returns, but care should be taken with the additional risk associated.

6. Plan rental property income
The deductibility of mortgage interest against rental income will increase to 75% next year and will be restricted by 100% by 2020. In some circumstances, it is possible to mitigate, which should be investigated to help save additional tax on the rental income.

7. Save for your children into ISAs and Pensions
Your children (under 18) also have an ISA allowance; the Junior ISA (JISA) as well as a pension allowance. The maximum ISA contribution each year is £4,260. Your child can take control of their JISA at age 16 but are unable to make any withdrawals until 18.

Additionally you are able to make a net contribution of £2,880 into a pension for a child or a grandchild. This will then benefits from a further 20% tax relief to increase the total contribution to £3,600. Your children and grandchildren do not need any earnings for this contribution to be made, though the funds will not be able to be accessed by them until their retirement. Larger contributions may be made if they have earnings over £3,600 p.a.

8. Make gifts
There are a number of ways to reduce or mitigate Inheritance Tax (IHT), but one of the simpler and modest methods is by making gifts of up to £3,000 p.a. during your lifetime. Called the Annual Gift Exemption, these funds are immediately exempt from IHT.

The Annual Gift Exemption can be carried forward, but only for a year. So, if IHT is a concern and you’d like to gift some wealth to loved ones, now is your opportunity. If you’d like to discuss other ways to mitigate IHT, don’t hesitate to get in touch. We will be looking to cover some of the possible changes to IHT being promoted by the Office of Tax Simplification in our next edition of The Wire.

In April the tax-free amount for IHT will remain at £325,000, the additional £125,000 Residence Nil Rate Band will rise to £150,000 in April. Remember, however, if your estate is valued at more than £2 million, the Residence Nil Rate Band will be reduced by £1 for every £2 over the £2m threshold. This means that there will be no RNRB available if the deceased holds assets of more than £2.2M. This will rise to assets of £2.35M in 2021/22 when the full £175K allowance kicks in.

Reliefs such as Business Property Relief and Agricultural Property Relief are ignored when calculating the value of the estate.

9. Give to charity
If you’ve donated to a worthy cause Gift Aid is available to receive tax relief on your contribution. It’s not just for the charity; as a higher or additional rate taxpayer you are able to claim the difference between the basic rate received by the charity and the additional Income Tax you have paid.

10. Maximise cash returns
Other than moving deposits to capitalise on the best interest rate available, it’s wise to consider the £85,000 maximum protection granted by the Financial Services Compensation Scheme (FSCS). Consider what level of emergency cash funds you really need to be holding given that cash holdings are typically earning less than CPI and so are normally losing value in real terms.

11. Take dividends
The Dividend Allowance lets you receive dividend income of up to £2,000 free of Income Tax, after which tax charged on dividends is 38.1% for additional rate taxpayers. It cannot be carried forward and will be lost at the end of the tax year. It’s a modest sum, but is worth considering if you do have shares or equity.

12. Structure your income
The personal Income Tax allowance is increasing from £11,850 to £12,500 and the basic-rate band from £46,350 to £50,000. However, a rise in national insurance contributions to 12% on earnings between £46,350 and £50,000 will negate some of this saving.

13. Revisit your financial plan
You may not have the time to address each of these points, so remember we are here to help. If you have any questions about using your tax-efficient allowances or planning for the 2019/20 tax year don’t hesitate to get in touch with your financial planner.

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