If you are the owner manager of your own company and you have distributable profits
Make sure:
a) you and your family take advantage of the tax free dividend band.
b) vote sufficient dividends to make best use of your tax allowances and tax bands.
Don’t leave it too late, dividends cannot be back dated.
If your spouse pays tax at a lower rate than you, you could transfer some shares to them, and then vote a dividend.
Are you eligible for the ‘Marriage Allowance’
If you are married or in a civil partnership and your income is less than your Personal Allowance (or you don’t pay Income Tax), and your spouse is not a higher rate taxpayer, it is possible to transfer up to 10% of your Personal Allowance to your partner, thereby reducing the amount they pay tax on. You can backdate the claim for up to 4 years, so you may be looking at a tax benefit of c.£1000 .
The claim must be made online at
https://www.gov.uk/marriage-allowance. It cannot be claimed on your Tax return or otherwise.
(NB. If you or your spouse was born before 6.4.1935 it may be better to claim Married Couples Allowance)
Make pension contributions
Making pension contributions can result in significant tax benefits; eg, reducing your taxable income in the year of contribution, tax free growth, and IHT savings.
The maximum you can obtain tax relief on is the amount you earn in the tax year (up to a maximum of £60,000), or £3,600. Any unused capacity from the previous 3 years can increase the allowable contribution to as much as £240,000.
If you earn more than £260,000 per annum the £60k maximum is restricted by £1 for every £2 over £260k, but subject to a maximum restriction of £50k.
Consider transferring income producing assets to other family members
It is s bit late for this to have much effect in the year ending 5th April 2019, but the next tax year is nearly here already, so see
https://suttonstax.co.uk/blog/post/how-you-own-property-affects-tax-payable and
https://suttonstax.co.uk/blog/post/income-splitting-and-shifting-reduce-tax-liabilities to get an idea of the possibilities.
Business Asset Disposal Relief (BADR)
A 10% Capital Gains Tax (CGT) rate applies to assets which qualify for BADR, up to a lifetime limit of £1 million. If BADR isn’t available the rate can be as high as 28%.
Various condition need to be met to qualify for BADR, so it is best to take advice before you sell.
Use the annual Capital Gains Tax (CGT) exemption and assets standing at a loss to reduce CGT
The annual exemption is currently £6,000 pa, but it will be reduced to £3000 from 2024/25. It has to be used each year or it is lost, so it can therefore be worthwhile considering bringing forward the sale an asset that stands at a gain in order to make use of the allowance.
If you have already used up your annual CGT exemption and are facing a CGT bill, it might also be worthwhile considering selling any assets standing at a loss, which can be offset against you chargeable gains, and thereby reduce tax payable.
Invest in Enterprise Incentive Schemes (EIS) or Seed Enterprise Investment Schemes (SEIS)
These types of investment can be risky, but the tax incentives are tempting!
With both schemes, you can defer tax on capital gains you have already made, and get Income Tax relief on the sum invested, and future disposals are not subject to CGT (after a minimum holding period).
An EIS investment will give you 30% Income Tax Relief tax relief on up to £1m invested (or up to £2m if the company is ‘knowledge intensive’)
An SEIS investment will give you 50% tax relief on investments up to £100,000.
It is possible to claim Income Tax relief in the tax year preceding investment.
Invest in ISAs
The return on ISAs is tax free, whether income or capital. If you’re over 18 you can invest up to £20k in ISAs.
Gift money to save Inheritance Tax
If your estate is likely to suffer a charge to Inheritance Tax charge, you may wish to consider lifetime gifts.
Most lifetime gifts are caught by an Inheritance Tax charge if you don’t survive the gift by 7 years; however the following gifts are not caught by the 7 year rule:
– up to £3,000 , or £6,000 if you didn’t use previous tax year’s allowance (the allowance can be carried forward one year).
– up to £250 per individual re ‘small gifts’.
– any ‘regular’ gifts out of ‘income’
– a £5000 marriage gift made by parents, a £2,500 marriage gift made by grandparents, a £1000 marriage gift made by anyone else.
The above list is by no means exhaustive, and most taxpayers will certainly benefit from good tax planning advice. I am a Chartered Tax Advisor, so if you need practical and reliable help with your tax affairs call me on 015394 32540 or 07881 286903, or email [email protected], for an initial conversation.