New Year Tax Tips

January 2018
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The New Year is the ideal time for getting finances in order, particularly as some key tax deadlines happen in January. Below are LEBC’s Tax Saving tips.

  1. Be sure to file your tax return and pay any tax you owe, the deadline for this is 31 January. After then fines and penalties apply for late filing and payment.
  2. Review the income you expect to receive in this tax year. Is it as tax efficient as it could be? If you are drawing income from shares there is £5,000 tax free allowance for dividend income but higher and additional rate taxpayers may pay tax on dividends above this level. This allowance will drop to £2,000 from 6 April 2018. See our blog 'Shareholders Set To Receive Record Dividends' for further information. Tax due on the excess earned in 2016/17 must be paid by 31 January.
  3. Interest paid on deposit accounts, from gilts and corporate bonds is tax free for the first £1,000 for basic rate taxpayers, £500 for higher rate taxpayers. If your interest earned in 2016/17 was in excess of these allowances you will need to inform HMRC of this and pay any tax due before 31 January 2018. Tax is no longer deducted at source on these savings. Top rate taxpayers with taxable income over £150,000 get no allowance and must pay tax on all interest earned. Further useful information can be found in our blog post 'Are You Owed or Do You Owe?'.

    Nil rate taxpayers need no longer pay tax at source on their savings accounts, If you have had tax deducted from earlier years savings income, you need to act before 5 April to claim back for all the years 2013/14 to 2015/16. Claims can only be backdated for 4 years.
  4. Review your capital gains and losses. The tax free allowance of £11,300 has to be used by 5 April. From 6 April the allowance will be £11,700. Realizing gains and losses each year can reduce the total tax you pay on your investment growth. Spouses may change ownership of assets between them CGT free and in this way can double up the tax free allowance. Capital gains are 10% or 20% for basic and higher rate or top rate taxpayers. The rate applicable to residential property remains at 18% and 28%. For more information take a look at our previous blog post 'Independent Taxation Part 2'.
  5. Use your allowance for tax free ISA saving. Adults can add up to £20,000 each before and after 5 April 2018. Under 18s can save £4,128 this tax year. 16-17 year olds can invest £24,128 if they open a cash ISA alongside their Junior ISA. Additional information can be found in our blog post 'Cash or Stocks & Shares ISA-Which Is Right For You?'.

    18 to 40 year olds who wish to buy their first property may invest £4,000 of their ISA allowance in a Lifetime ISA which attracts a Government bonus of 25%, so long as the money is used to buy their first home or if not, invested till age 60. Penalties apply if accessed for any other purpose.
  6. Review your pension savings. Your allowance for tax relief on pension savings of up to £40,000 p.a. is granted at your highest income tax rate. Relief not claimed can also be carried forward for up to 3 years after the end of the tax year but drops off each 5 April.

    If your taxable income is more than £110,000 you may have a reduced allowance between £10,000 and £40,000. Using up earlier years' relief will be even more important to you. It will also be reduced to £4,000 per year if you have flexibly accessed a pension and withdrawn more than the tax free cash. (small pots excluded).
  7. Parents of children under 16 or age 20 if still in education, receive child benefit, a tax free benefit unless one of you has income of £50,099 or more. Making pension contributions and charitable gifts can restore eligibility for this. Our blog posts 'How Saving For Retirement Can Restore Child Benefit' and 'Making Gifts to Charity More Valuable' provide more information on this topic.
  8. If you have taxable income over £100,000 the personal allowance is reduced. There are tax benefits in making pension contributions or gift aid donations which may also restore your personal allowance. This may give an effective rate of relief of 60% making retirement saving and charitable giving more affordable.
  9. If you have larger pension funds built up, consider applying for a protected lifetime allowance.

    The lifetime allowance is now £1 million. From 6 April 2018 this will increase to £1,030,000.If you take funds in excess of this when you start to draw your cash or pension, die or reach age 75, additional tax charges may apply to the excess. There is lifetime allowance protection you may be able to apply for to reduce the impact of this tax,
  10. Married couples/civil partners, where one is a nil rate taxpayer and the other is a basic rate taxpayer (see table) may elect to transfer 10% of the personal allowance from the nil rate to the basic rate taxpayer. For 2016/17 this saves £220 and £230 this year. After 6 April it will be worth £237 as the personal allowance increases to £11,850. If you have not elected to transfer this allowance claims can be backdated for up to 4 years. A claim for all 4 years made after 6 April would save £897. This is covered in more detail in our 'Independent Taxation Part 1' blog post.
  11. If you are willing to invest for the longer term and to risk loss of capital, investing in a Venture Capital Trust or Enterprise Investment Scheme may be tax efficient. Income tax relief at 30% is granted on the investment which can also be used to shelter capital gains and in the case of VCTs may pay any dividends tax free.

Taxable Income Thresholds

2016/17

2017/18

Personal Allowance

Nil rate (0%)

£11,000*

£11,500*

Basic rate (20%)

£11,000 to £42,999

£11,500 to £44,999 *1

Higher rate (40%)

£43,000 - £149,999

£45,000 - £149,999 *2

Top rate (45%)

£150,000 plus

£150,000 plus

 

*Where earned income does not exceed this allowance up to £5,000 of savings income is taxed at the starting rate of 0%.
*1 Residents of Scotland £42,999
*2 Residents of Scotland 
£43,000 to £149,999

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.

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