Are you tax efficient for 2018/19?

With 5 April 2019 approaching, one might be forgiven for feeling like the only thing to consider over the next few weeks is Brexit! But there are some important tax planning measures for the 2018/19 tax year that you should be considering now, if you have not already done so.

Income Tax

The first thing probably worth thinking about is where your total level of income from all sources is likely to fall in 2018/19, in relation to the various tax bands.

For 2018/19 the tax-free personal allowance is £11,850, but this is reduced by £1 for every £2 of income you earn above £100,000.

  • Consider pension contributions or gift aid donations. This could help to 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. But for high earners whose “income” exceeds £150,000, the pension tax relief is restricted whereby the usual £40,000 Annual Allowance is tapered down to potentially only £10,000. You also need to consider any contributions made into your pension by your employer when determining the available Annual Allowance. We suggest you check you available Annual Allowance with your pension adviser.
  • Pension contributions or gift aid donations could also mitigate the withdrawal of child benefit where your income exceeds £50,000.
  • Gift aid donations also qualify for higher rate tax relief and the charity can also claim the basic rate element.
  • If you hold shares in a company, whether quoted or your own business, you can receive up to £2,000 this tax 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 2019. Note the company also needs to have sufficient distributable profits after tax to pay the dividend and if you already have dividends from other sources of £2,000 or more, tax of 7.5%, 32.5% or 38.1% would apply on any further dividends paid.
  • There are many different variants of ISA investments now available. If you want to maximize your entitlements before 6 April 2019 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 can be exempt and inheritance tax free after two years, subject to detailed conditions. Capital gains can also be deferred on part or all of your investment depending on circumstances. Note though that we cannot provide you with investment advice on specific qualifying investments and this is only an overview of the tax rules. You should seek independent financial advice to consider whether the investment itself meets your objectives.
  • Subscription investments in SEIS shares give you income tax relief at 50% on investments up to £100,000 per person. It is possible to claim relief in either 2018/19 or 2017/18 and attractive capital gains advantages can also arise. These reliefs are subject to detailed conditions and like EIS, you should seek independent financial advice to consider whether the investment itself meets your objectives.
  • 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 £11,700 for the current year. This exemption is another “use it or lose it” opportunity and cannot be carried forward beyond 5 April 2019. However, you would need to consider all the factors before proceeding. With shares for example, there are anti-avoidance rules that can bite if you sell but repurchase the shares soon after.
  • Consider the timing of capital gains if your income is likely to fluctuate between 2018/19 and 2019/20 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.
  • Non-residents need to be aware of the “NRCGT” regime when selling UK residential property and the tight 30 day deadline for filing a return and paying the tax.
  • 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. But also where you hold “alphabet shares” you may now find that after 5 April 2019, your shares may no longer attract Entrepreneurs Relief following recent Budget announcements. It may be necessary for the company Articles to be reviewed and possibly updated and so please talk to us if you are thinking of selling your shares in the near future.

Other General Action to Consider

  • 5 April 2019 might be the last day on which you can make an "overpayment relief" claim if you think you overpaid tax in 2014/15.
  • Consider investing in plant and machinery for your business as it might qualify for 100% capital allowances, either as the “Annual Investment Allowance” or if the assets qualify as energy or water efficient, or you may wish to consider certain hybrid or electric cars.
  • Review your current Will to ensure that it stills meet your requirements.
  • Review income producing asset ownership between you and your spouse in order to maximize use of personal allowances and basic rate bands.
  • If you hold residential property worth at least £500,000 within a company or similar “envelope”, then you may need to file a return to comply with the “ATED” legislation. There are certain “trigger” events also for property developers and landlords. Talk to us if you are unsure of your position.
  • Make sure you utilise available Inheritance Tax exemptions such as the annual £3,000 per donor and £250 for small gifts before 6 April 2019 and consider gifting away surplus income on a regular basis which qualifies as inheritance tax free. Documenting such transactions is strongly recommended.
  • Consider acquiring inheritance tax efficient assets such as business and agricultural assets.
  • Plan ahead for the IHT residence nil rate band which was initially introduced from 6 April 2018 on a phased in basis.

For further information and guidance, please contact Jon Miles or Calvin Healy on 01225 325580, or email or