The end of the tax year (5 April 2018) is fast approaching, it is therefore important to ensure your affairs are in good order and all available tax allowances and exemptions are utilised.
Below is an overview of the key things to be mindful of and some of the changes that are due to take place next tax year.
The current dividend nil rate band of £5,000 which was introduced in 2016/17, is due to be reduced to £2,000 from 6 April 2018 onwards. This means that a higher proportion of income could be subject to income tax when a dividend over and above £2,000 is paid out (resulting in an extra £225 of tax per annum).
Therefore, if you have not utilised your full nil rate dividend of £5,000 or your total income is below £45,000 basic rate threshold, then it might be possible to do some tax planning to reduce your overall tax payable.
2. Preserving your personal allowance
The personal allowance is phased out when a person’s income is between £100,000 and £123,000 (for the current year tax, 2017/18), resulting in an effective rate of tax of up to 60% within this bracket. However, taxable income can be reduced through pension contributions (subject to restrictions) and charitable donations. As such, consideration should be had as to your current income levels for this year and whether it would be possible to drop this income to below £100k to fully utilise your personal allowance.
3. Pension planning
As noted above, pension contributions can be an effective tool in not only minimising the income tax payable by individuals but also the corporation tax payable by companies, as company paid pension contributions are usually a deductible expense in a company.
4. Rental income
The changes originally announced in 2016, are now being phased in, whereby only a percentage of a landlord’s mortgage interest can be offset against their rental income. From 6 April 2018, only 50% (decreasing to 0% by 2020/21) of the interest payments can be offset; instead landlords can benefit from a flat rate tax relief at 20% (however this relief is also being phased in, so only half of the 20% can be offset from April 2018.)
5. Inheritance Tax (IHT)
Annual exemption of £3,000 per annum
This is the amount individuals can give away each tax year, without any IHT implications. If the previous tax year’s (2016/17) £3,000 annual exemption is unused, up to £6,000 can be given away tax-free in 2017/18. Other reliefs and exemptions may also be relevant and so please contact a member of the Inspire tax team if IHT planning is of interest.
Nil rate bands
Whilst IHT nil rate band remains the same as last year at £325,000, there is new nil rate band where a main residence is passed on death to a direct descendant. This additional nil rate is currently £125,000 per individual (increasing from £100,000 in 2017/18) meaning that a main residence with a value of up to £450,000 (£325,000 + £125,000), or £900,000 for married couples or those in a civil partnership, can be passed on death to a direct descendant without any IHT implications.
6. Enterprise Investment Schemes (EIS)
The annual lifetime allowance for EIS income tax relief (30%) is due to increase to £2,000,000 from 6 April 2018 (£1,000,000 2017/18). However the additional £1,000,000 must be invested in ‘knowledge-intensive’ companies. The lifetime limit however remains at £20,000,000.
7. Venture Capital Schemes (VCT)
The annual amount companies can receive under VCT investments (if a knowledge-intensive company) has increased to £10,000,000 (£5,000,000 2017/18). The lifetime limit still remains at £20,000,000.
As always, if you have any concerns with your year-end planning or if you have any questions on anything noted above then please do not hesitate to contact the Business Advisory Team on 01202 717867.