Action needed before 5 April 2018?

With 5 April 2018 fast approaching there are important planning measures that you should be considering, if you have not already done so.

Income tax

  • If you hold shares in a company, you can receive up to £5,000 this year with no tax due. Note though, this is a “use it or lose it” opportunity, such that the dividend would need to be paid before 6 April 2018. Note the company also needs to have sufficient distributable profits after tax. But if you already have dividends from other sources of £5,000 or more, tax of 7.5%, 32.5% or 38.1% would apply on a further dividend. The dividend “allowance” is also set to reduce to £2,000 after 5 April 2018.
  • Consider pension contributions or gift aid donations to either mitigate the withdrawal of child benefit where your income exceeds £50,000, or mitigate the withdrawal of personal allowance where your income exceeds £100,000, or mitigate additional rate tax at 45% where your income exceeds £150,000.
  • A pension contribution into your personal pension scheme will also provide tax relief at your marginal rate of income tax. Careful planning will be required to ensure current Annual Allowance limits are not breached, resulting in unforeseen tax charges, and note this also needs to be considered for any contributions made into your pension by your employer. You will need to check your Annual Allowance with your pension provider together with any unused available carry forward allowances.
  • If you have lent money to a company there may be an opportunity (“use it or lose it” basis again) for you to be paid interest before 6 April 2018 and gain some benefit from the starting rate and nil rate for savings income, depending on your overall income profile.
  • Gift aid donations also qualify for higher rate tax relief and the charity can also claim the basic rate element.
  • Gifts of quoted shares and land to charities qualify for full relief against income and are exempt from capital gains tax.
  • Review income producing asset ownership between you and your spouse in order to maximize use of personal allowances and basic rate bands.


Investments

  • There are many different variants of ISA investments now available. If you want to maximize your entitlements before 6 April 2018 you should talk to your financial adviser, or we can make an introduction.
  • Investments in EIS shares can give you income tax relief at 30% on investments up to £1 million and there are carry back options. After three years any capital gain made on sale is exempt and inheritance tax free after two years. Capital gains can also be deferred on part or all of your investment depending on circumstances.
  • Investments in SEIS shares give you income tax relief at 50% on investments up to £100,000. Attractive capital gains advantages can also arise.
  • Income tax relief at 30% is available on qualifying VCT investments up to £200,000. Dividends received on units are tax free and after five years gains on sales of units are also tax free. You should still, however, seek independent financial advice to consider whether the investment itself meets your objectives.


Capital gains tax

  • Make use of your capital gains tax annual exempt amount which is £11,300 for the current year. This exemption cannot be carried forward beyond 5 April 2018.
  • Consider the timing of capital gains if your income is likely to fluctuate between 2017/18 and 2018/19 as gains for most assets are taxed according to your marginal rate of tax, at either 10%, 20%, or both. However, disposals of (broadly) “residential property interests”, UK residential property sold by non-residents, and certain “carried interest gains” still attract tax at 18%, 28%, or both.
  • Consider the use of a main residence election if you have purchased a second home over the last two years and used this as a genuine residence. (Be aware though of the potential Stamp Duty Land Tax surcharge).
  • Consider claiming capital losses for assets which have become worthless within the last four years. Once claimed the losses can be used to offset current or future gains.
  • Check whether you meet the conditions to qualify for entrepreneurs relief on business assets (such as shares in your unquoted company) or if not, explore opportunities to make them qualify. Gains on sales of qualifying business assets currently attract a tax rate of 10% regardless of your taxable income.


Inheritance tax

  • Review your current will to ensure that it stills meet your requirements.
  • Make sure you utilise available exemptions such as the annual £3,000 per donor and £250 for small gifts before 6 April 2018, and consider gifting away surplus income on a regular basis which qualifies as inheritance tax free. Documenting such transactions is recommended.
  • Invest in inheritance tax efficient assets such as business and agricultural assets.
  • Plan ahead for the new residence nil rate band which is being introduced from 6 April 2018.

For further information and guidance, please contact Jon Miles or Calvin Healy on 01225 325580, or email jm@richardsonswift.co.uk or ch@richardsonswift.co.uk