When the current tax year comes to an end so will some valuable tax planning opportunities. Some of these will survive into 2018/19, but many will finish on 5 April – and if you don’t use them, you will lose them.
This year there will be no Spring Budget to complicate year-end tax planning. The new Autumn Budget cycle makes it easier to combine planning for the end of one tax year and the beginning of the following year, and there are several areas to consider.
Independent tax planning
Most tax bands and allowances will increase from 6 April – with Scotland poised to implement a new set of bands and rates – but important thresholds will be frozen yet again. For example, the £50,000 limit above which child benefit effectively becomes subject to a tax charge.
One allowance will be cut in 2018/19: the dividend allowance will drop from £5,000 to £2,000 in April. If you are a higher rate taxpayer, that move alone could cost you up to an extra £975 in tax. This mix of changes makes it important to review your tax affairs jointly if you are married or in a civil partnership. You could save yourselves tax by simply rearranging the ownership of your investments and deposits.
The overall ISA contribution limit for 2017/18 is £20,000, an increase of £4,760 over the previous tax year. However, there will be no further increase for 2018/19. The role of ISAs has changed in recent years because of the introduction of the personal savings allowance and dividend allowance, and continued ultralow interest rates. The drop in the dividend allowance from April and political uncertainties have both added to the attraction of stocks and shares ISAs.
5 April will be the last day you can make a pension contribution utilising any unused annual allowance for the three prior tax years – making 5 April 2018 your last chance to use allowances from 2014/15, which could be up to £40,000.
Capital gains tax (CGT)
2017 was a good year for global share markets. If you made gains, it is worth considering taking some of your profits, even if you immediately reinvest them (for example, using a Bed and ISA). In 2017/18 you can realise gains of up to £11,300 free of CGT – and from 6 April the exemption will rise to £11,700. Straddle the tax years and you could individually realise up to £23,000 of gains with no tax charge.
Inheritance tax (IHT) planning
Year end is your last chance to use your 2017/18 IHT annual exemptions and any unused gifts from your annual exemption limit of £3,000.
Contact us as soon as possible if you want to undertake any of the year-ending/beginning planning outlined above. Some areas can be dealt with quickly, but others – like maximising pension contributions – can involve data gathering and complex calculations.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate tax advice.
Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
Tax laws can change.