Have you planned for the new tax year?
With the start of the new tax year on 6 April, here are a few reliefs to consider:
If you are married or in a civil partnership then it is possible to transfer assets tax free to benefit from the use of tax free allowances or unused lower rate tax bands.
• For dividends; the first £2,000 of dividend income for any UK taxpayer is tax free. Whilst this amount is still included within your taxable income no Income Tax (IT) is charged. If your spouse or civil partner is not using their dividend allowance you may wish to consider transferring some shares to them to benefit from this. As a higher rate tax payer you could save up to £650 tax per annum.
• For interest; a similar relief exists with basic rate tax payers being able to receive up to £1,000 Income Tax per annum. This is reduced to £500 for higher rate tax payers. Additional rate tax payers are not entitled to this relief.
• Claiming the Married Allowance; where you are a basic rate tax payer and your spouse or civil partner has income less than their personal allowance (PA) they can transfer up to 10% of their unused PA so that you receive a 20% tax credit on this amount. The maximum claim equates to a £250 tax saving for 2019/20.
If you are thinking of donating to charity you could save tax at the same time. Gift Aid Donations (GAD) extend both the basic rate tax band (BRB) and higher rate tax band (HRB) by the amount you donate plus 20% and can even be treated as if they were made in the previous tax year. It is important that you make the appropriate gift aid declaration and obtain evidence of this in order to make a claim on your self-assessment tax return.
Pension contributions can reduce your tax liability by increasing your BRB. An £800 pension contribution could cost a higher rate tax payer £600 due to the way the tax relief is applied.
The amount of personal contributions you can make will depend on your other income and your pension provisions already in place. In some cases, too much of a contribution could cause a tax charge.
An individual will start to lose their personal allowance where their taxable income exceeds £100,000. Likewise, a family will start to lose their child benefit where one person’s income exceeds £50,000. In circumstances like these it would be advisable to see if you can take any steps to restrict your income to these thresholds. This could include reallocating your income in ways described above or indeed through the use of pension contributions or GAD. If you are the owner manager of your own company then you may wish to consider if paying the same level of dividends is still appropriate where you breach these thresholds. In some circumstances drawing less money can result in the same amount of net income.
Have you spoken to your financial adviser about tax efficient investments? Tax reducing investments that you could make include:
- Enterprise Investment Scheme (EIS) - Seed Enterprise Investment Scheme (SEIS) - Venture Capital Trusts (VCT)
Where making such investments are appropriate to your circumstances you could get up to 50% income tax relief on the investment made (SEIS) as well as the benefit of tax free gains and the possible use of Capital Gains Tax deferral relief if you have sold other investments in the correct time period.