We’re on the home stretch towards the end of the financial year so here are ten tax planning strategies you may want to consider in order to maximise Government entitlements, avoid potential penalties, boost your retirement savings, and ultimately, reduce your tax bill.
Enterprise Investment Scheme
EIS is a higher risk, tax efficient investment. Investments generate a 30% income tax credit in the year made (or can be carried back into the previous tax year) to offset against income tax liabilities in the year. The annual allowance for EIS investments is £1,000,000.
Capital Gains Tax
The CGT annual exemption for all individuals for 2017-18 is £11,300 which you should try to use, if possible. Consider a transfer of assets between spouses so that both can benefit from the £11,300 annual exemption.
Take advantage of the annual gift exemption of £3,000. If you have not used it in the previous year, then £6,000 can be claimed in the current year and can offset one or more gifts. There are also exemptions for other small gifts, like marriage and also to charitable and political organisations.
Have you used your full allowance for 2017-18? Up to £20,000 can be invested, all of which can now be in cash, if desired. Although making the investment itself doesn't attract any tax relief. For those under 18, the Junior ISA allowance is £4,128 this year.
Pensions remain one of the most tax efficient and flexible ways to save for retirement. The annual allowance is £40,000 for 2017-18. For those with an income excess of £150,000, there is a scale of reduction so that at £220,000, the allowance falls to £10,000.
Additional Tax Rate Payers
Do you have income over £100,000? Then you could be paying tax at an effective rate of up to 60%. Taxable income could be reduced if you: make pension contributions, make gift aid payments, and defer income such as dividends.
This allows you to bring forward any unused annual allowance (AA) for the previous three years. The current tax year AA must be used in full first. Tax relief is granted in full for the year the contribution is made. Those with no contributions in the last three years could have a Carry Forward up to £170,000.
For those with a very high-risk tolerance, Seed EIS offers 50% income tax credit for investments in very small businesses within the UK. For those with capital gains, the Seed EIS allows 14% CGT deduction. The AA is £100,000.
Venture Capital Trust
VCT is a highly tax efficient investment scheme designed to provide private equity capital for small expanding companies, and income and/or capital gains for investors.The annual allowance for VCT investments is £200,000.
This allowance means that you won't have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have. Consider transferring assets between spouses to fully utilise allowances.
If you would like more information on any of these tax planning strategies mentioned above, please get in touch with us today on 0845 200 4041 or via [email protected] to allow enough time for us to assess your situation and implement any strategies that may be of benefit to you.