From 6 April 2018, the dividend allowance, on which dividends are tax free is being reduced to £2,000. For dividends above this, basic rate taxpayers will have a 7.5% tax liability, higher rate 32.5% and additional higher rate taxpayers 38.1%. Taxpayers with income above £100,000, will lose £1 of their personal allowance for every £2 of income above £100,000 so the effective rate on dividends shoots up between £100,000 and £123,000 for 2017/18.
In many cases, it will be more tax efficient to take dividends before 5 April 2018. Please call us before 5 April 2018 to discuss your situation.
Reviewing your pension contributions should form part of your end of year planning, whether it’s to make use of your annual allowances and those unused from earlier years (2014-15 onwards) or to preserve your personal allowance when your income is over £100,000. The maximum that can be held as a Lifetime Allowance (LA) is currently £1,000,000. This will be increasing to £1,030,000 for the year ended 2018/19. The annual allowance (AA) remains at £40,000 for those with income below £150,000.
CAPITAL GAINS TAX
All UK tax residents are entitled to an annual CGT exempt amount which for 2017/18 is £11,300. This is especially useful for those with readily realisable assets such as shares. Please note that if you buy back the shares within 30 days, anti-avoidance rules will kick in. However, these will not apply if another person such as a spouse acquires the shares. Inter-spouse transfers or gifts of assets remain free of CGT. Married couples therefore can look to maximise their combined allowances of £22,600.
The annual gift exemption of up to £3,000 can be used in each tax year. If unused, the allowance can be carried forward one year, so if you did not make gifts last year, you may consider making gifts of £6,000 before the end of the tax year. ‘Gifts out of income’ is still a valuable exemption and records should be kept if you wish to make use of these exemptions. Please contact us so that we can advise what records should be kept and the format they should be in to ensure that they comply.
The nil rate band currently remains frozen at £325,000. Wills should be regularly reviewed to take advantage of the new residence nil rate band which was introduced from 6 April 2017.
The maximum contribution for 2017/18 is £20,000. The limit for a Lifetime ISA is currently £4,000 and there is an additional allowance of £4,128 that can be placed by parents into a junior ISA for children.
ENTERPRISE INVESTMENTS SCHEME (EIS), SEED ENTERPRISE INVESTMENT SCHEME (SEIS) and VENTURE CAPITAL TRUSTS (VCTs)
The EIS, SEIS and VCT reliefs were introduced to provide incentives to investors to invest in small unquoted companies, which are generally perceived to be higher-risk investments. The main incentive is income tax relief but there are also other valuable tax reliefs including CGT deferral relief, loss relief on disposal, CGT exemption and IHT relief where conditions are met.
ANNUAL PROPERTY OR TRADING ALLOWANCE
From 6 April 2017, you can get up to £1,000 a year in tax-free allowances for gross property or trading income, so if you have not already done so, now would be a time to make use of it before 5 April 2018. If you have both types of income, you’ll get a £1,000 allowance for each. Gross income means the total amount you get before any allowances or expenses. Please note that you can’t deduct any other expenses or allowances if you claim this allowance.
If any of the above are of interest to you, please call us on 0207 384 2647