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As 5th April approaches we look at ways to ensure you've used up your tax allowances, by Louise Osselton, Director

  1. The ISA limits for 2017/18 total £20,000 which you can split between various types of ISA such as a stocks and shares or a cash ISA.  You can also invest up to £4,120 for each child in a children’s ISA.  Income (interest or dividends) that you receive from an ISA is not subject to income tax and does not need to be included in your annual dividend allowance.  Any profits from investments within an ISA are also free of capital gains tax. If you haven’t used up your ISA limit and have savings or investments that could be transferred into an ISA you have up to 5th April to make use of your 2017/18 entitlement. In addition, contributions into some ISA’s such as the Help to Buy ISA and the Lifetime ISA are also topped up by the Government.
  2. The annual dividend allowance for 2017/18 totals £5,000 and dividend income within this band is tax free – for an owner-managed company we recommend distributing dividends of at least £5,000 each (providing the company has sufficient profits available).  If you have a spouse (or family members that are involved with the business), it may be a good option to gift shares to them so that they also may receive dividend income to use each individual’s £5,000 allowance.
  3. You also have an annual exempt amount (£11,300 for 2017/18) for capital gains tax each tax year and if you can carefully time the sale of your investments you could reduce your overall capital gains tax bill – for example if you have a number of investment sales to make around March / April, splitting them into each tax year (and also between you and your spouse) may enable you to use up your exempt allowances in each year.
  4. You may be able to get full tax relief on pension contributions of the lower of £40,000 or 100% of your annual earnings (subject to the lifetime allowance of £1 million and the relief also reduces if your earnings including pension contributions are in excess of £150,000) each tax year.  You may also have unused allowance from the previous three tax years to carry forward – so if you are considering making an additional or significant pension contribution in the next few months, the timing of it into the right tax year may give you extra relief.

    Starting a pension for your spouse if they do not have one, or topping up if they aren’t contributing their full allowance, may also be a tax-efficient option.

  5. If your business year end is coming up and you have a capital purchase to be made that is eligible for capital allowances, it may be more efficient to ensure the purchase is completed within your current year’s annual investment allowance of £200,000. This will ensure the allowance for 2018/19 is available in full to cover subsequent capital expenditure.  Relief covered by the AIA is given by reducing your taxable profits by 100% of the cost of the asset up to the £200,000 limit.
  6. The marriage allowance lets you transfer £1,150 of your personal allowance to your spouse if you have earned less than £11,500 this tax year, giving a saving of up to £230.  To be eligible for this your spouse’s income must be between £11,501 and £45,000 (£43,000 in Scotland).
  7. If you are planning to gift money to children and grandchildren, you can give away up to £3,000 every tax year and it will be exempt from inheritance tax (IHT), while any unused allowance from the previous year can be carried over. This means a couple could give away up to £12,000 in a single year with no effect on their estate for IHT purposes. It is important to keep a record of the gifts you make. 

These suggestions are a guide only and we recommend that we review your taxable income and personal circumstances in detail before you make any decisions and if required we can refer you to a specialist pension or independent financial adviser.

If you have any queries on the structure of your individual remuneration package in advance of the new tax year, please let us know and we will be happy to advise.