Making plans: The new tax year begins
When the current tax year ends so will some valuable tax planning opportunities.
On this turn of the tax calendar, there are several areas for you to consider. This year there will be no Spring Budget to complicate year-end tax planning.
Independent tax planning
Most income tax bands and allowances will increase from 6 April – with Scotland poised to implement a new set of bands and rates – but important thresholds are frozen yet again and the dividend allowance will drop from £5,000 to £2,000. If you are a higher rate taxpayer, this could cost you up to an extra £975 tax in 2018/19.This mix of changes makes it important to review your tax affairs jointly if you are married or in a civil partnership, as you could rearrange the ownership of your investments and deposits.
The overall ISA contribution limit for 2017/18 (and 2018/19) is £20,000, an increase of £4,760 since 2016/17. The role of ISAs has changed in recent years because of the introduction of the personal savings allowance and dividend allowance, and continued ultra-low interest rates. The drop in the dividend allowance and political uncertainties will add to the attraction of stocks and shares ISAs.
5 April will be the last day you can make a pension contribution utilising any unused annual allowance you have dating back to 2014/15 – which could be up to £40,000. Maximising pension contributions now can be a wise move because pension tax relief is not guaranteed to exist forever: the cost to the Exchequer in 2017/18 is forecast to be nearly £41 billion.
Capital gains tax (CGT)
2017 was a good year for global share markets. If you made gains, it is worth considering taking some of your profits, even if you immediately reinvest them (for example, using a Bed and ISA). In 2017/18 you can realise gains of up to £11,300 free of CGT and from 6 April the exemption rises to £11,700. Straddle the tax years and you could individually realise up to £23,000 of gains with no tax charge.
Inheritance tax planning (IHT)
Year end is the final day for using your 2017/18 IHT annual exemptions and any unused gifts from your annual exemption limit of £3,000.
Contact us as soon as possible if you want to undertake any of the year-ending/beginning planning outlined above. Some areas can be dealt with quickly, like maximising pension contributions, but others can involve data gathering and complex calculations.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate tax advice. Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.