A short reminder of year-end income tax and tax-advantaged investments planning

While year-end (aka “last minute”) planning understandably attracts the headlines at this time of year, most will accept that the best tax planning is planned at the beginning of the tax year.  Remember Step 2 of The Money Plan – Be Financially Well Organised.

That said here is a (very) short reminder of the main (so by no means comprehensive) income tax and investment strategies to consider as the year-end approaches.

Main allowances

Maximise use of the:

  • Personal allowance – £11,500 for those with incomes below £100,000 (see below)
  • Personal savings allowance (£1,000 and £500 for basic and higher rate taxpayers respectively)
  • Nil rate starting band of £5,000 (for savings income) reduced £1 for £1 by all non-savings income over the personal allowance
  • Dividend allowance – £5,000 (this is reducing to £2,000 from 2018/19)

Personal allowance with income over £100,000

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £123,000 or above.

You’ll also need to do a Self Assessment tax return.

If you don’t usually send a tax return, you need to register by 5 October following the tax year you had the income.

All well and good but, in practice, at this time late in the tax year, the only people who can practically use these allowances are those who can

  1. Control income and
  2. Create the right amount of income in the right hands

Most obviously this will apply to business owners – and remember, all of those allowances (subject to their own conditions) are available to each of a couple.  Any income (above £100 in a tax year) derived from capital gifted by a parent to a minor unmarried child not in a civil partnership, though, will be assessed on the parental donor under the parental settlor rules.

Aside from paying income (salary or dividends) to use a family’s tax allowances there’s not too much that can be done.

Investment income from ordinary investments will flow in over the year (not generally subject to investor influence).  However, those with the ability to draw from pensions could do so to use any unused personal allowance(s). Pension income is not savings income of course.

Any available personal savings allowance and nil rate starting band could, however, be used in relation to chargeable event gains made under offshore investment bonds as investment bond gains qualify as savings income.

In addition,

  1. if you anticipate that your marginal tax rate in the next tax year will be greater than this year’s and subject to all of the observations made above, then it may be worth triggering (that control point is relevant again) the liability to tax in the current tax year;
  2. there’s the 30% tax credit that goes with a qualifying EIS or VCT investment….with the ability to carry back any EIS subscription to the immediately preceding tax year – but these carry significant risks; and
  3. any unused pension relief capability (subject to all of the well-known constraints) needs to be considered.

So, not exhaustive and certainly not revelationary but a few things to consider as the tax year end approaches – if you haven’t already that is.

 
IR35 - the recent tax case of Christa Ackroyd Media Limited and the Commissioners for HMRC
Take the penalty out of Self-Assessment

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