Tax year end: making the most of your last-minute opportunities

You’ve got until Thursday 5 April before the tax year ends, so let’s have a look at how to make the most of your opportunities before then.

Personal Allowance

Every person over the age of 13 has a 2017/18 personal allowance of £11,500 – the income they can earn this year before paying any tax. If you own your own company, make sure you’re making the most of that; if your partner also works in the business, and has an employment contract – this is about making the most of your legitimate opportunities – then they too have the same allowance and you should make the most of it.

At the other end of the scale, people earning over £100,000 see that personal allowance reduce on a sliding scale to zero at an income of £123,000. Remember that income here includes earnings from different sources like your salary, share options and so on. Between those numbers, the marginal rate is effectively taxed at 60% (trust me on the maths, it’s 40% income tax plus 20% on your personal allowance), so you need to do whatever you can to reduce your money back down to under £100,000 if possible. You can do this through charitable or pension contributions for example (see below for the latter).

Make use of your personal allowance, take action and do something about it if you’re in either of the above categories. (If you’re employed and earning less than £100,000, your personal allowance will take care of itself.)

Savings Allowance

This is the interest you can accrue through the year without paying tax. For basic rate taxpayers it’s £1,000, for higher rate taxpayers it’s £500 and for additional rate taxpayers (over £150,000 income) it’s zero. It may be too late for you to do anything about this one now, but be aware of the limits and you can plan ahead for next year to maximise your savings.

Dividend Allowance

This comes from private equity holdings, listed shares or shares in your own limited company. The tax-free annual allowance this year is £5,000, but that’s reducing from 6 April (Friday) to £2,000, so make the most of it while you can to pay the tax you should be paying, but not more.

Sole Traders & Partnerships

You should be looking at offsetting any capital expenditure or losses that can be attributed in the current financial year. If you leave it another few days, you’ll have to wait another 12 months to get the benefit from those purchases. Is there anything you need to buy for your business to make use of this? If so, do it quickly.

If you’re a limited company and your company year end coincides with the financial year end, this also applies to you.

Pension Contributions

Consider making pension contributions before the tax year ends, not after. You’ve probably left it too late to set up a new pension (though an online provider like Lexo may be able to do it), so use your existing pension scheme to make a contribution. Every individual has a £40,000 annual limit, up to 100% of their income, that they can make as a personal contribution (unless earning over £110,000 annually).

This is important if you’re working part-time, earning less than the personal allowance, and have some spare capital lying around in your accounts: each year you should diligently put into a pension up to 100% of your income, you’ll get 20% tax relief on it. For example, if you have no income you’re allowed to pension £3,600 annually; but you only pay the net payment of that, £2,880, with the other 20% being added in tax relief FREE by the government.

Those pension contributions can also be done for children, even new-born babies, anyone up to the age of 75. To remind you, this is only available this year until 5 April and then your allowance is gone, so act quickly!

If you’re earning between £100,000 – £123,000 then you can use a personal pension contribution to reduce your income below six figures and you’ll get your personal allowance back for the year.

If you don’t have spare capital in your account but you do have an ISA, you can consider withdrawing some money from your ISA to fund your pension contribution. The only thing not to do is use your emergency reserve fund – that’s for emergencies only!

ISAs

Everyone over the age of 18 has a £20,000 annual ISA allowance until 5 April (which can include a LISA if you’re considering buying your first property in years to come), so if you haven’t used yours yet then do so quickly.

Junior ISAs can be used for your children, up to £4,128, to fund for future expenses from university to weddings to cars.

Get all the information you need on ISAs here.

Capital Gains

If you’ve had success in investing outside ISAs, then you may have unrealised capital gains. If so, consider selling down a sufficient amount to utilise your £11,300 tax-free capital gains tax allowance.

You’ll need to make the sale on or before 5 April and you can’t buy back the same investment for 30 days or the sale is deemed never to have occurred – but you can buy back a similar investment, and you can buy the same investment through an ISA or pension (doing this is known as bed & ISA or bed & pension).

Transfers between married couples or those in legal relationships do not incur capital gains tax liabilities, so you can transfer money between each other and the other person can realise the capital gains tax allowance, making it £22,600.

Another thing to consider: harvesting your losses. If you’ve an investment that’s making a loss, consider selling it to offset gains that you’ve realised elsewhere. Capital gains tax is calculated using your gains minus your losses, so doing this can save you tax that you can reinvest (again, remember not to buy back the same investment within 30 days or it is deemed not to have been sold in the first place).

You’ve only got a few days left, so act quickly and make the most of what’s on offer to you this tax year.

 
Happy New Tax Year - Invest Options
The Money Plan: first 90-day check-in of 2018

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