If you have already submitted your tax return for the tax year ended 5 April 2018, there’s no better time to think about saving tax in the current year. Here are three pieces of helpful tax-saving advice…
Your RfM advisor can help with all aspects of personal tax and tax planning, from capital gains to inheritance tax and everything in between. If you have a specific matter to discuss, please get in touch. In the meantime, we recommend that you give consideration to the following each tax year:
Disposing of capital assets
If you decide to dispose of capital assets such as a second home, jewellery, shares, a business or antiques and works of art, careful planning is essential. As an individual taxpayer, you can make capital gains up to an annual exemption limit without paying capital gains tax. Each spouse/civil partner will have their own limit which for 2018/19, is £11,700. This limit cannot be carried forward to a future tax year, nor can it be transferred to anyone else, including a spouse or civil partner. Therefore, it can be beneficial to transfer assets between spouses or civil partners to make use of both parties’ annual exemptions.
Making the most of your pension
In the tax year 2018/19 you can get tax relief on pension contributions up to £40,000. Any contributions above this limit are potentially charged to tax on an individual as the top slice of income. However, there are restrictions on the annual allowance available for those with adjusted annual income over £150,000, meaning that the contributions can potentially be reduced to £10,000.
The good news is that any unused annual allowance can often be carried forward for up to three years. In other words, you can use any unused allowances from the last three years in the current tax year. If you intend to do this, the remaining allowance for 2015/16 would need to be used by 5 April 2019. It can only be utilised after using the annual allowance for the current year.
Using your ISA allowance
Individual Savings Accounts (ISAs) can provide a tax-efficient investment as income from ISA investments is exempt from income tax. Capital gains made on investments held in an ISA are also exempt from capital gains tax.
The ISA allowance (the maximum you can save tax-free in an ISA in one tax year) is £20,000 for 2018/19. You can use this allowance across different ISAs but funds may only be invested in one of each type per tax year. The ISA allowance can’t be carried into the next tax year, so it’s a good idea to start planning now to take advantage of it.
There are a broad range of ISAs to choose from including the Innovative Finance ISA, designed to facilitate for peer-to-peer lending. This type of ISA usually offers higher returns because of the increased risk. An ISA portfolio might include a small subscription in a higher risk ISA like this.
Adults under the age of 40 can invest up to £4,000 each year into a Lifetime ISA. This counts towards the total annual ISA limit but the advantage is that the government gives Lifetime ISA-holders a 25% bonus, up to a maximum of £1,000 per annum. This investment vehicle is designed to help first-time buyers to fund the purchase of a home or to save for later life. Where two first-time buyers are making a joint purchase, each eligible buyer can take advantage of the Lifetime ISA bonus. There are various conditions, such as a charge for early withdrawals.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.