The 2017/18 tax year may be drawing to an end (5th April 2018), but we’d like to remind our clients of just a few ways to save tax.
We’ve seen a lot of uncertainty, with post-Budget U-turns and the majority of the government’s proposed tax changes being lost following a rushed pre-election Finance Act. It’s not been easy to keep focused and up to date on tax-saving opportunities in personal, family and business financial planning.
The proposals have included making tax digital legislation, the reduction of the dividend allowance from £5,000 to £2,000, the introduction of deemed domicile for all taxes (long-term UK residents who are not domiciled in the country will now need to pay UK tax on foreign-sourced income) and the reduction of the money purchase annual allowance from £10,000 to £4,000.
Here are a handful of ways in which savings can be made on tax:
The Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your husband, wife or civil partner - if they earn more than you. This reduces their tax by up to £230 in the tax year. To benefit as a couple, you must both be basic rate tax payers and the lower earner must have an income of £11,500 or less.
The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of income Tax (20%) by 2020/21. For 2017/18, 25% of finance costs are currently subject to basic rate restriction - as part of the phasing in process. Landlords should try to minimise the impact of this new restriction.
The residence nil rate band is an additional allowance for inheritance tax, which came into force for deaths which occurred after 6th April 2017. It has started at £100,000 for 2017/18 and will rise to £175,000 by 2020/21. These figures are per person, so a couple may benefit from double the allowance. It is only available where a residence is inherited by direct descendants or where a property passes to certain types of trust.
It’s a good time to review a will or other estate planning provisions.
Savings and investments
The tax-free dividend allowance is currently £5,000 for all taxpayers, but will be reduced to £2,000 from April 2018. It’s likely to have an impact on investment and business planning, as it means a basic rate tax payer who receives £5,000 per annum in dividends will have to pay an extra £225 tax from April 2018.
Retirement or first home
The Lifetime ISA (LISA) allows those between 18 and 40 to save towards retirement or a first home purchase with an added bonus. The limit of £4,000 counts towards your annual ISA limit - which is £20,000 for the 2017/18 tax year. You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of the two.
Businesses will not be mandated to use the Making Tax Digital for Business system with HM Revenue and Customs until April 2019 - but make sure you’re ready for it.
Employment and remuneration
Employers should review the tax effectiveness of their salary sacrifice schemes. Since April 2017, most of the tax and NIC advantages of using many salary sacrifice arrangements have gone. Pension contributions remain exempt.
To find out more, or to discuss any of the above further, please get in touch with your main point of contact at Lang Bennetts, or our tax director, Simon Prior.