Top 10 personal tax reminders for the new tax year

Personal Tax Tips and Advice from TAG Accountants Group

Here at Wolverhampton Accountants TAG Accountants Group, we’ve set out a few timely, topical and hopefully, thought provoking observations regarding personal tax.

1. The taxation of dividends
The taxation of dividend income changed significantly from April 2016, and it has affected business owners who remunerate themselves via dividends rather than salary. For the last tax year, the taxation on dividends was 7.5% for a basic rate tax payer with a £5,000 tax-free dividend allowance. For 2018/9 the allowance reduces to £2,000. It may be worth considering gifting shares to your spouse to enable them to take dividends more tax efficiently although the benefit is clearly now much less.

2. Pensions tax relief
For the moment, tax relief associated with pension contributions remains an effective and tax efficient way to extract profits from your business with £40,000 per year obtaining tax relief. Note that if your pension pot exceeds £1.03m, the excess may attract a tax charge and your tax relief on contributions is reduced if you earn over £150,000. 

3. Spouse’s allowance – there are tax advantages to being married!
If you work and your spouse does not, or, they pay tax at a lower tax rate than you, then you may be missing out on some tax savings if you have investment and/or property income.

4. Transferable marriage allowance
Often unused, this relief applies where the higher earning spouse is a basic rate taxpayer and the lower earning spouse does not use all their personal income allowance. The lower earning spouse can transfer up to £1,185 in 2018/9 of their unused allowance to their spouse to reduce their tax bill.

5. High income child benefit tax charge
If you have children and a member of your household earns over £50,000 then you may need to opt out of child benefit or claim it and then suffer a clawback through your tax return. You may have options to shift any income to your partner to avoid this situation arising –  call us to find out how!

6. Earn over £100,000 pa? Don’t fall into the 60% tax trap
Earnings of between £100,000 and £123,700 will be taxed at an effective rate of 60 per cent for 2017/8. If this is likely to be you, please contact our specialist team to discover how great tax planning could help mitigate that.

7. Annual capital gains tax allowance
Every individual has an annual allowance for 2018/9 of £11,700 against capital gains (such as on the sale of shares or property) but, if you do not use it, you lose it. Assets that are currently ‘pregnant’ with a gain could be sold to use up this allowance and then re-purchased. Very careful tax planning is required, but it is possible to save up to £2,340 per annum in tax using this method.

8. Inheritance tax
It is vital to undertake a review of your will and determine any underlying liability to inheritance tax (“IHT”).  Everyone has a £325,000 IHT allowance or £650,000 for a married couple. April 2017 saw the introduction of the first tranche of the new residence nil rate band or the “family home allowance” adding an extra £125,000 worth of IHT-free allowance for your private residence for 2018/9. The threshold will increase until 2020, when it will provide £175,000 of extra allowance per individual. Remember there is an annual allowance available for gifts and for gifts on marriage and a number of IHT friendly investments available. There are many ways to legitimately negate IHT and thus leave more of your estate to your loved ones, but planning is everything. Call us if you’d like to know more.

9. Tax changes affecting property investors
Property investors continue to be a scapegoat for the Treasury. Recent tax changes such as the allowability of mortgage interest, stamp duty increases and wear & tear allowances abolition could have a significant impact on the post-tax profitability of your property portfolio so arrange a review to consider whether any alternative models such as incorporation could be a valid option.

10. ISA allowances
From April 2018, savers will be able to contribute £20,000 a year into standard ISAs, with the new limit for Junior ISAs being £4,260. The Lifetime ISA, launched in April 2017, is available to savers aged 18 to 40 who can save up to £4,000 per tax year, to which the Government will add a 25% bonus. Funds can be accessed at age 60 or for a first property purchase.

So, it’s clear that tax can be very complex, so we recommend you always take professional advice.

Our specialist tax team here at TAG Accountants Group, Wolverhampton can guide you through the entire process, so call us today on 01902 783172 or alternatively just click HERE to email us via our website.