Income tax annual allowance
Every individual has a tax free annual allowance which means they pay no income tax unless their income is above the threshold. If you are married or in a civil partnership, make sure you both make use of your tax free allowances by sharing the ownership of business and private assets in a tax efficient manner between you.
Sometimes you can pay too much tax without realising it. A change of employment, tax code or incurring job related expenses could mean that you are eligible for a tax refund.
Check your eligibility for tax credits and any other allowances you may be missing out on. Depending on your circumstances, we may be able to help you arrange your finances more efficiently to help you qualify for tax credits and other reliefs.
Make sure you claim relief for business expenses incurred whilst performing your job. Flat rate deductions are available for things like tools and clothing and you may also be eligible for capital allowances.
You can also claim mileage allowances for business travel you do as part of your job. If your employer doesn't pay you the full approved rate (45p for the first 10,000 miles for privately owned cars), you are eligible to claim relief for the difference.
You should make sure you have enough qualifying years for the full sate pension. You gain qualifying years by making National Insurance Contributions. Most people now need 30 qualifying years (increasing to 35 years), but it is possible to make voluntary contributions if you do not have sufficient qualifying years. Follow this link if you think this might apply to you: GOV.UK - state pensions
Personal pensions and gift aid
When you contribute to a personal pension, the government also gives you tax relief on your contributions, which means they effectively top up your pension fund for you at your highest rate of tax. This can be especially attractive if you are a higher rate taxpayer. We work closely with an experienced firm of Independent Financial Advisers who offer professional pension advice if you would like to discuss your circumstances with them.
In 2018/19, any individual under the age of 75 can contribute up to £3,600 gross (£2,880 net of basic rate tax) into a pension scheme regardless of their level of income. This means you can contribute into a pension scheme for your non-working spouse or children and they are deemed to have made the contribution net of basic rate tax even if they are non-taxpayers.
By contributing to a personal pension or by making charitable donations that qualify for 'gift aid', you may be able to bring yourself under certain tax thresholds such as the higher rate tax threshold and the tax credits thresholds. Charities also benefit by receiving a tax credit from the government when you complete a gift aid donation. However, do not give to charity via gift aid if your income is low as you may become liable to repay the tax credit claimed by the charity.
Savings and investments
Basic rate taxpayers can earn £1,000 of savings interest tax free. Higher rate taxpayers can earn £500 tax free. Everyone can also receive £2,000 of dividend income tax free regardless of their other income.
In addition to this, you should also make use of tax free savings accounts such as ISAs. You are able to save up to £20,000 tax free in either a cash or stocks and shares ISA. You can invest in a cash ISA from age 16 and a stocks and shares ISA from age 18.
Children are not exempt from tax but they do have their own personal allowances too. However, if you place money into investments in your child's name, any income will be taxed as yours, unless it comes to less than £100 per year (per parent per child). If this affects you, you should consider a tax free savings account for you child such as a Junior ISA.
Lifetime ISAs and Help to Buy ISAs
From April 2017, individuals under the age of 40 are able to open a Lifetime ISA (LISA) and contribute up to £4,000 in each tax year. For every £4 contributed to the LISA, the government will contribute £1. Individuals are able to make contributions and receive ‘top-up’ contributions from the government from the age of 18 up to the age of 50. Over their lifetime individuals will be able to make contributions of £128,000 matched by government contributions of £32,000. Funds may be withdrawn tax free to:
- purchase a first home up to £450,000 at any time from 12 months after opening the account; and/or
- for any other purpose from the age of 60.
Funds may be withdrawn at any other time but, unless the individual has a terminal illness, the government ‘top-up’ will be lost and the individual will suffer a 5% charge.
If you are saving to buy your first home, you can also save money into a Help to Buy ISA and the government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.
The marriage allowance lets you transfer £1,185 of your personal allowance to your husband, wife or civil partner - if they earn more than you. This can reduce their tax by up to £237 in the tax year 2018-19. To benefit as a couple, the lower earner must have an income of £11,850 or less and the higher earn must earn between £11,851 and £46,350.
If you are a UK resident, you are still liable to tax on income and gains arising overseas. However, if you suffer a foreign tax charge on income from overseas, you may be eligible for relief under the 'double taxation' rules.
Trading and property allowances
From April 2017, the government has announced the introduction of a £1,000 trading income allowance and a £1,000 property income allowance. These are aimed at ‘micro-entrepreneurs’, such as those letting out property or trading via ‘sharing economy’ websites.
Where individuals are in receipt of income below the new allowances, the income will not be subject to tax and will no longer need to be reported to HMRC.
Where gross income receipts are in excess of these amounts, the recipient can simply take the £1,000 allowance as a deduction against their gross income to arrive at their taxable income figure, rather than having to calculate and deduct the actual expenses they have incurred to arrive at their taxable profit.
If you take in a lodger, you can make use of 'rent-a-room' relief which means if your takings are less than £7,500 (2018/19) you pay no tax on that income. The exempt amount is halved if you let the room jointly.
Salary sacrifice and childcare
Salary sacrifice schemes may be offered by your employer which can help you save tax and National Insurance Contributions. It is often more tax efficient to receive a lower salary in return for certain tax exempt benefits such as employer pension contributions (instead of paying into a personal pension) and childcare vouchers. Employers benefit from this arrangement too.
However, there are proposed new rules which means that tax free childcare will be provided under a new system. More details can be found on the government website here.
Capital gains tax and inheritance tax
Please read the following pages to learn more about tax planning for CGT and IHT:
This information is not meant as a substitute for professional advice and by no means covers every scenario. Almost every rule described here will be subject to many exceptions and caveats. Tax legislation is extremely complex and can be difficult to understand. You should discuss your circumstances with a qualified professional before acting on any information contained within this website. Tax legislation is constantly changing and the information contained within this website is written from our current understanding and interpretation of the tax system as of 6 April 2018.
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