12 Tax Saving Opportunities
If you would like to take advantage of these tax saving opportunities or discuss how we can help you to minimise your tax liability, please call us to evaluate how we can help you.
1. Top Up Your Pension
Speculation remains over whether the government will cut pension tax reliefs and allowances in a bid to reduce public spending. Therefore, if you’ve still got a few years to go before retirement, you should think about boosting your pension savings now, so that you can benefit from current rates of tax relief and potentially enjoy a higher income when you stop work.
If you’re a basic rate taxpayer, you will receive tax relief at 20% on your pension contributions, which will automatically be added to your pot. If you’re a higher or additional rate taxpayer, you can claim an extra 20% or 25% through your self-assessment tax return. It means that a pension contribution of £1,000 can cost a top-rate tax payer as little as £550.
With the government under increasing pressure to reduce public spending, there’s no guarantee that the higher rates of tax relief will be maintained into the future. Those wishing for a better chance of making their retirement plans a reality should consider fully utilising their annual allowance for this tax year to make the most of the tax breaks on offer. Unused allowances can be carried forward, but only from the three previous tax years. This year is the final chance for pension savers to use the allowance that was in place in 2014/15. If it is not used by 5 April 2018, it will be lost forever. There is a tapered reduction in your annual allowance where your adjusted income is over £150,000.
2. Invest in an ISA
The substantial increase in the ISA allowance to £20,000 for this tax year was a very welcome step in encouraging individuals to invest for their future. However, as interest rates in the UK remain near record lows, money being held in Cash ISAs is failing to achieve the very basic objective of keeping pace with inflation. The result is real losses for savers.
Those who are investing their ISA allowance for the long term – in assets offering the scope for attractive levels of income and capital growth – are giving themselves a better chance of maximising the tax-saving opportunities on offer.
2a. Consider an ISA for your children (JISA)
A child up to the age of 18 can hold two types of Junior ISA; a stocks and shares ISA and a cash ISA. The limit for each in 2017/18 is £4,128. However 16-18 year olds can open an ‘adult’ cash ISA and a JISA in the same year meaning they can save £24,128 tax free.
16 and 17 year olds can also hold a ‘Help To Buy’ ISA, as this is treated as a cash ISA.
Unlike ‘adult’ ISAs however, where the investor can open and subscribe to new ISAs each tax year, a child can only hold one of each type throughout their childhood (although between 16 and 18 they can hold one of each type plus an adult cash ISA, which could be a Help to Buy ISA).
3. Reduce your tax payment due by 31st July
The comment that ‘January is tax return month’ is a myth, and only the taxman benefits from you delaying submitting your tax return by 9 months.
If you are on full accounting, or you think your income for 2017/18 is down, we may be able to reduce your tax bill if you complete your tax return BEFORE 31st July. We always advise clients to complete and file their tax returns ASAP after 5th April. The advantages to YOU when you file your tax return SOONER are; HMRC agree your tax figures, you know your future tax bill and can allocate funds and also you close sooner HMRC’s ‘window of investigation’ into your tax affairs.
Start to get your paperwork together NOW, and we can prepare your tax return. You will then know how much tax you need to find for the next THREE payments! You then have time to plan and budget for these payments.
4. Estimate your income
You should have an idea what your income is going to be for the current tax year, and how much surplus ‘cash’ you have for any tax saving opportunities. A small pensions contribution for example (see above) might change your tax band, or move you out of a higher tax band all together, and will (in most instances) reduce your tax bill. Get to grips with the annual allowances, and know where your income level falls.
By taking advantage of our quarterly VAT service at no extra cost, you will already know in advance your estimated annual income and estimated tax. You will also be able to consider short-term investment of your funds.
5. Personal Savings Allowance
There is a nil rate tax band on interest earned up to £1,000 for basic rate tax payers, and £500 for those on a higher rate. If you are earning interest over this threshold, it may be worth considering your spouse’s tax allowances and transferring savings.
The same could apply to the tax-free dividend allowance of £5,000 allowable to each taxpayer. Dividends received above this amount are taxed at 7.5%, 32.5% or 38.1%, dependent on your tax banding.
6. Marriage Allowance
You may be eligible to transfer £1,150 of your personal tax allowance from your partner/spouse and receive between £326 and £844 tax reduction. Go to the HMRC website.
Your spouse/partner could work for you, and there is a potential tax saving. HOWEVER, this must be bono fide work, paid at a commercial rate. Please call if this is something you would like to discuss.
7. Self-employed AND employed?
If you are employed and self-employed in the SAME TAX YEAR, you may have overpaid National Insurance.
You can check by calling HMRC on 0300 200 3500.
8. IHT Planning
There are a number of exemptions that allow individuals to reduce future bills. Perhaps the best known is the annual gifting allowance. This gives individuals the opportunity to remove £3,000 of assets from their estate immediately (£6,000 if they use the previous year’s unused allowance as well).
Taking steps to reduce your taxable estate by topping up a child’s pension or Junior ISA could go a long way to providing them with an invaluable head start in life. Nevertheless, with the end of the 2017/18 tax year looming, you only have a short amount of time to make this year’s £3,000 gifting allowance count – and to carry forward last year’s, if you haven’t used it already.
8a. IHT Planning – The Residence Nil Rate Band
When it comes to IHT planning, the reliefs often come with caveats and, unless you understand what those are, you are making assumptions. Quite often, those assumptions are wrong.
For instance, those without children cannot benefit from the Residence Nil Rate Band, thus; if you leave your home to a niece or nephew there will be no additional allowance. Likewise, it may not be available when a property has been left in trust, because the beneficiary is a trust, not a direct descendant. It could therefore be important for those who have put such arrangements in place to review their Wills.
Furthermore, estates valued at £2 million or more will lose £1 of the RNRB for every £2 of value above £2 million; meaning that if your estate is currently worth more than £2.2 million, there will be no RNRB.
9. Capital Gains Tax (CGT)
For most people, this would relate to assets like property or shares. The capital gains allowance in 2017/18 is £11,300 per person. For higher rate tax payers, it may be that assets should be in joint names (if the other tax payer is in a lower tax banding), or held entirely in their name.
If you are considering disposing of part of your portfolio and your gain is likely to be close to the allowance, it may be worth considering a part disposal, over a number of years. There is no CGT on ISA disposals.
10. Rent a room relief
Let a room in your only or main home, and receive up to £7,500 tax free! Further details are available from HMRC.
11. Tax-free childcare
Under the HMRC scheme, HMRC will contribute up to £2,000 per child towards childcare, if your income is less than £100,000.
12. Receive £100 discount off your next invoice
Should you recommend us to a colleague who then goes on to use our service, we’ll apply a £100 discount to your next invoice.