Posted by Nick Day on 06 Mar 2019
Year-end personal tax planning tips 2018/19
The last day of the 2018-19 UK tax year (5 April 2019) is looming large and for those who seek to be tax efficient, it is time to examine ways of potentially mitigating 2018-19 personal tax liabilities via year-end planning reviews.
Issues to consider include but are not limited to:
- Ensuring each spouse uses their full Personal Allowance for income tax purposes where possible. An annual income of less than currently £11,850 is not liable to tax. Spouses/civil partners should consider the possible transfer of income producing assets to ensure that Personal Allowances are not wasted.
- If a self-employed person or family company employs a spouse to assist in the running of the business, the spouse could be remunerated fairly to utilise the tax-free Personal Allowance. It is possible to set the earnings at a level whereby no tax or National Insurance Contributions will be due but entitlement to State Retirement Pension and other benefits is protected.
- Minor children are entitled to Personal Allowances. There are restrictions on the amount of income that a child can derive from a parent but gifts from other relatives can be considered. Junior Individual Savings Accounts (JISAs) can be funded by parents and the subscription limit is £4,260 for 2018-19. Teenaged children can be employed in family businesses providing legal restrictions and national minimum wage issues are taken into account.
- Pension contributions of up to £3,600 gross per year can be made by individuals with no taxable income. The net contribution after tax relief contributed at source by the UK Government would be just £2,880.
- The Annual Allowance (AA) for making tax-relievable pension contributions is £40,000, so consideration should be made to utilising the full AA for 2018-19 by 5 April 2019. It is also possible to carry forward unused AAs from the previous three tax years, so it may be possible to receive tax relief in the current tax year on contributions well in excess of £40,000 with a little planning. However, the AA for “high earners” (the definition is complicated but broadly, those with an annual “adjusted income” of between £150,000 and £210,000) is reduced to as little as £10,000 for 2018-19 so it is key for those individuals to review their contributions schedule thoroughly to avoid breaching this pensions savings limit and the additional tax charges that would result.
- The pension Life Time Allowance (LTA – the total amount of UK pension savings each individual is allowed to build up in their lifetime) is currently £1.03m although this limit increases to £1.055m from 6 April 2019 onwards.
- The “flexible draw down” pension rules allow individuals the opportunity to plan their affairs to manage the level of money they take from their pension pot to both minimise annual income tax liabilities and keep within the LTA. A review of what you could draw down as income from your pension funds before 6 April 2019 could prove worthwhile.
- The use of tax-favourable investments such as Individual Savings Accounts (ISAs), Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), Social Investment Tax Relief (SITR) and Venture Capital Trusts (VCT) should be reviewed. Up to £20,000 per person (so up to £40,000 for a married couple) can be invested in an ISA for the 2018-19 year. Income tax relief on investments made into EIS, SEIS, SITR and VCT ranges from 30% to 50% within certain annual limits.
- Timing of income – taxable incomes may fluctuate from year to year as a result of one-off payments or changes in circumstances. Consideration should be given to the benefits of accelerating or deferring the taxation point of investment income, employment bonuses etc., and also to the timing of the payment of dividends paid out by family-owned companies.
- In particular, company dividends are currently treated as the top slice of an individual’s income. They are taxed at 7.5% for basic rate (20%) income taxpayers, 32.5% for higher rate (40%) income taxpayers and 38.1% for additional rate (45%) income taxpayers. However, the first £2,000 of dividends will be tax-free to the recipient, no matter which tax band they fall in. Investors and those with family-owned businesses should review their affairs to check the impact of the new rules and consider whether dividends can be accelerated to before 6 April 2019 or deferred until after 5 April 2019 to save tax.
- Taxable income of between £100,000 and £123,700 is effectively taxed at a rate of 60% due to the loss of the Personal Allowance, which is reduced by £1 for every £2 of taxable income between £100,000 and £123,700. Deferral of income may, therefore, save tax at the rate of 60% although planning might also include the use of additional pension contributions, charitable donations, etc. Entitlement to Child Benefit payments could also be protected/reinstated using year-end personal tax planning. 1
- Capital gains tax – consideration should be given to utilising the tax-free Annual Exemption (currently £11,700), which cannot be carried forward and is lost if not used. Each spouse/civil partner is entitled to the exemption each year so gifts between spouses prior to sales of assets may be tax-effective. It may be worth crystallising capital losses where gains in excess of the Annual Exemption have been made. The deferral of sales until after 5 April may see tax paid at lower rates and provide significant cash-flow benefits in terms of when tax needs to be paid. “Bed and breakfasting” to increase the base acquisition costs of shares is no longer tax-effective where shares are sold and re-purchased shortly afterwards (unless you are non-resident when the rules do not apply), but planning with spouses/civil partners buying back the shares may still be tax-effective. Capital losses need to be claimed within four years of the end of the tax year in which the loss arises.
- Inheritance Tax – the use/carry forward of the £3,000 annual exemption should be reviewed, together with other possible exemptions such as those for small gifts of up to £250 per individual, regular gifts out of normal annual income, and tax-free gifts in consideration of marriage, which can range between £1,000 and £5,000 depending on the relationship with the person getting married.
- Expatriates – there are always a number of factors for “expats” to consider whether they are non-domiciled individuals (“non-doms”) living/working in the UK or Brits leaving the UK and seeking to establish non-residence status. In particular, non-domiciled individuals who have previously filed a UK tax return on the full “Remittance Basis” are able to reorganise their offshore funds prior to 6 April 2019 to separate our taxable income/gains from non-taxable tax-free capital. This tax-free capital could then be remitted to the UK on a tax-free basis. You can click here for more detailed information on our services for Expatriates.
If you would like any advice regarding on year-end personal tax planning for 2018/19 or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org
- The Import One-Stop Shop (IOSS) for EU VAT
- UK Property Sales: Capital Gains Tax for Non-Residents
- Capital Gains on Residential Property
- Family Investment Companies
- Liechtenstein Disclosure Facility Versus UK-Swiss Tax Agreement