It seems like we’ve only just finished all of last year’s tax returns, and now another tax year-end is only a week away! So, what can you do before 5 April 2018 to help cut your tax bill?
Here are our top 6 actions to cut your tax bill. And we’ve attached a detailed guide here
1 – Pensions
You can invest up to £40,000 in a pension in the year to 5 April 2018…..and get tax relief from the government.
If you’re a basic rate taxpayer, the government will put £25 into your pension for every £100 you contribute. If you’re a 40% taxpayer, this rises to £67, and for a 45% taxpayer, it’s £82!
If you haven’t put anything in for the past few years, you can still use the tax-free allowances for the past 3 years….as well as this year.
And don’t forget the kids – you can get tax relief on their pensions too. This is also true if your spouse isn’t earning – you can contribute on their behalf and get the tax relief.
It’s worth noting that there are detailed rules and lower limits if you earn over £150k, so it’s definitely worth speaking to an Independent Financial Adviser.
2 – ISAs
One of the quickest and easiest ways to save tax on your investments is to use your Individual Savings Accounts (ISA) annual allowance. All interest, income and profits on selling an ISA are tax-free, so it’s a really tax-efficient way of saving.
Adults can invest up to £20,000 in an ISA each year. This is the highest it’s ever been. And, once again, don’t forget the kids – you can put up to £4,128 into a Junior ISA this year for each of your children. So, a family of 4 could invest up to £48,256 in ISAs and get all of the related income tax-free.
Again, it’s worth speaking to an IFA to find the best ISA for you.
3 – Capital Gains Tax
You get an annual tax-free exemption of £11,300 on any Capital Gains that you make, ie the profit on selling any of your assets. This could, for example, be the profit on selling a rental property or investments.
Therefore, it’s worth thinking about the timing of any sales – if you’re thinking of selling something soon, but haven’t used this year’s exemption, then you should sell by 5 April to get the £11,300 tax-free.
You can also think about transferring assets to your spouse to use up both exemptions. Otherwise, you could end up paying tax at between 10% and 28% of the profits.
4 – Child Benefit
If you receive Child Benefit and either you or your partner earns more than £50,000 in the tax year, you’ll have to pay some of it back. If either of you earn more than £60,000, you’ll have to pay it all back. For a family with two children, this can be worth £1,788!
If you’re above the threshold, there are things you can do before 5 April to protect your child benefit – for example, pension contributions or charitable donations are deducted from your income when calculating the £50,000.
5 – Reduce dividend tax
You can have £5,000 of tax-free dividends in the year ended 5 April 2018, but this drops to £2,000 next year. Therefore, make sure you’re using this year’s allowance before you lose it. If you’ve got profits in your company, it could be worth declaring dividends before 5 April.
6 – It’s all in the timing
If you own your own company, you can choose the timing of any dividends, bonuses or salaries. Therefore, it’s worth keeping an eye on whether you’re near any of the main thresholds and deciding whether the money is best paid out this year or next.
The main thresholds of annual income for a standard adult are:
- £11,500 – limit of personal tax-free allowance
- £45,000 – 40% tax rate begins
- £50,000 – withdrawal of Child Benefit begins
- £60,000 – all Child Benefit is withdrawn
- £100,000 – withdrawal of personal tax-free allowance begins
- £150,000 – 45% tax rate begins
Again, you should take into account your spouse and any children – they might have spare allowances in any of the bands above. If so, you might think of transferring assets or shares so that they get the relevant income.
All of the above can be done before 5 April. It makes sense to ask for advice before doing any of them, so please let us know if you need any help.
If you’d like our detailed guide, you can download it here
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