As the end of another tax year looms, it is important for taxpayers to review their overall position to ensure that they are making the most of the valuable tax allowances and reliefs available to them. We have set out below some of the main areas that may be of interest.
Are you approaching or exceeding the £100,000 taxable income threshold for personal allowances?
For individuals with net income in excess of £100,000 the personal allowance is restricted by £1 for each £2 worth of income. This results in an effective rate of 60 per cent on income between £100,000 and £125,000. There are ways of mitigating this by reducing taxable income to below £100,000 – for example, by making charitable donations under the gift aid scheme or personal pension contributions.
Are you claiming full value from other allowances for 2019/20?
Some individuals have flexibility over their income and if possible, they can look to ensure that they are using the other allowances available to them. These include the dividend allowance (£2,000) and the personal savings allowance (for basic and higher rate taxpayers only).
Have you maximised your ISAs savings entitlements?
ISAs provide valuable tax-free returns but they are subject to annual limits, which cannot be carried forward and so should be utilised each year where possible.
Are you considering investments related to the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) or Venture Capital Trusts (VCTs)?
Investments into EIS, SEIS and VCT arrangements, while carrying an element of risk, also carry attractive tax reliefs and benefits to the investor. There are timing considerations around these reliefs to maximise tax relief and so individuals interested in these types of investments should consider their position now.
Have you used your annual allowance for pension contributions?
Individuals have an annual allowance for pension contributions; furthermore they can offset any unused annual allowances from the previous three tax years so any unused allowances from 2016/17 that are not offset against excess contributions in 2019/20 will be lost.
Have you used your CGT annual exemption?
Individuals can realise chargeable capital gains of £12,000 in 2019/20 without CGT arising. Subject to investment considerations, individuals should consider whether they want to sell assets to realise gains to use this exemption. Alternatively, assets sitting at a loss could be sold in the current tax year to offset against gains.
Have you made gifts of £3,000 in the year?
Each individual has an IHT annual exemption of £3,000 which may be applied to any gifts made during the 2019/20 tax year. This can be carried forward one year and so if no gifts were made in 2018/19, a gift of £6,000 can be made this tax year with no IHT implications. Individuals can also make regular gifts to individuals that do not exceed £250 per person per annum.