Get shipshape for the year-end

As the tax year-end approaches, it’s time to batten down the hatches, tighten the screws and make sure your finances are looking shipshape by 5 April. So, how’s it looking when it comes to your income, investments, pension and inheritance tax arrangements? Are you being as smart as you could be?

We’ve put together some top tips in four key areas that you might want to think about.

INCOME TAX

If you earn between £45,001 and £150,000, you’ll be liable for the Higher 40% tax rate (dividends 32.5%). The Additional rate of 45% (dividends 38.1%) applies when your income exceeds £150,000. But, if your income falls between £100,000 and £123,000, you’ll gradually lose your personal allowance.

Ways to be smart:

• If you’re a business owner or hold investments, take advantage of the £5,000 dividend allowance.
• Transfer assets that give you an income to your spouse or civil partner, if they’re taxed at a lower rate.
• Make pension contributions if you have scope to do so or make gifts to registered charities under ‘Gift Aid’. Doing either of these will reduce your higher rate tax liability and could also reinstate your personal allowance.
• Take advantage of the current annual investment allowance. You may be able to claim capital allowances when you buy assets that you use in your business – this allowance is now £200,000.

CAPITAL GAINS

Capital gains tax, which is a tax levied on profit from the sale of property or an investment asset, has an annual exemption of £11,300.

Ways to be smart:

• If you haven’t already used your annual exemption, is there any way you could sell assets before 6 April 2018? If you’ve already used it however, defer any sales until after 5 April.
• If you have a spouse or civil partner, transfer assets with gains to them and then sell the assets to utilise their annual exemption.
• Entrepreneurs’ Relief is available on the first £10m of an individual’s lifetime qualifying gains. This means that capital gains tax is due at 10% rather than 20%.
• If you own a second home and have occupied this as your main residence, consider making an election to nominate one of your homes as your main residence.

INHERITANCE

Inheritance Tax (IHT) can be charged at 40% on your estate and on gifts you’ve made. There are plenty of IHT reliefs available, but make sure you use them in time.

Ways to be smart:

• Make regular gifts out of income which can be exempt from IHT. You also have an allowance of £3,000 per year. If you haven’t used your previous year’s allowance, you can also claim this, so £6,000 in total.
• Make a will – dying without one may mean that assets are not distributed as you wished and increase tax.
• Review the size of your estate and your will to make sure you benefit from the Residence Nil Rate Band. This rate was introduced last year and could offer a tax saving of up to £80,000 this year but increasing to £140,000 by 2020/21.

PENSIONS AND INVESTMENTS

Ways to be smart:

• Make pension contributions. The maximum annual allowance for the 2017/18 tax year is £40,000 but tapers down to £10,000 if your total income exceeds £210,000. Be aware also of the Lifetime Allowance, which is the limit you can accumulate within pension schemes without an additional tax charge. This was reduced from £1.25m to £1m from April 2016.
• Use your 2017/18 ISA allowance of £20,000 and for your spouse/ civil partner.
• If you’re aged 18-40 years, you could invest £4,000 into a Lifetime ISA and receive a 25% tax free bonus from the government.
• Invest in an asset or fund which provide various tax reliefs, such as an SEIS, EIS or VCT. These investments often carry comparatively higher investment risk. Talk to us about potential risks and rewards.

Any questions?

If you’d like to discuss anything above, get in touch with our personal tax expert, Charndeep, if it’s tax related, or Jonathan if your question relates to pensions or investments. You can reach them at: charnb@coopeparry.com or jonathane@cooperparry.com.

We have to say:
The value of investments and the income from them can go down as well as up, and you may get back less than you originally invested. Past performance is not a guide to the future. The investments described are not suitable for everyone. This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information.

The Financial Conduct Authority does not regulate personal tax advice. Tax thresholds, percentages and tax rates are in line with our current understanding of HMRC legislation and are subject to change. Taxes are dependent on individual circumstances.