Year end tax planning: five priorities

26 Mar 2018

calculator and paperwork

With the end of the tax year fast approaching, we pinpoint five things to look out for before 5 April.

Optimising savings and investments
Taxpayers only have until 5 April to use the current tax year’s £20,000 ISA allowance, which allows them to build up substantial savings that do not fall under capital gains tax or income tax. Various pitfalls, not least the cut to the tax-free dividend allowance from £5,000 to £2,000 from 6 April, make utilising the ISA allowance a key part of any tax strategy.

5 April is also the deadline for pensions allowance tax relief, with the allowance for 2017-18 capped at a maximum of £40,000. However, it is possible to make additional contributions to top up earlier tax years, using the earliest years first. This is the last chance to top up for the 2014-15 year for those who have not put in the maximum £40,000 for that year.

At the same time, since April 2016, savings interest of up to £1,000 is tax free, and this should not be overlooked as useful planning tool.

According to the Charities Aid Foundation, donations to charity rose from £9.7 billion to £10.3 billion in the UK during 2017. It is important to match charitable donations to the tax years in which large income or capital gains have arisen in order to maximise tax efficiency. Whilst cash donations can be carried back to the previous year if made before the tax return is submitted, if taxpayers wish to get tax relief on the gift of shares to charity in this tax year then time is running out.

Capital gains tax
Profits of up to £11,300 are free from capital gains tax, but other mechanisms are available to reduce the burden, not least Entrepreneurs’ Relief. Venture Capital Trust or Enterprise Investment Schemes (EIS) also provide capital gains tax relief on profits made on investments, although there has recently been a clampdown on those EIS investments deemed as targeting capital preservation rather than supporting higher risk business.

Annual gift allowance
Often the most efficient strategies to reducing the potential inheritance tax bill is through gifting, with gifts exempt from inheritance tax including an annual £3,000 lump sum. 5 April is the last day to use the lump sum mechanism for the current tax year.

Marriage allowance
Marriage allowance lets you transfer £1,150 of your personal allowance of £11,500 to your husband, wife or civil partner, if they earn more than you. This can help reduce their income tax. Although this year’s period ends on 5 April, it is possible to backdate claims to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.

James Hender, Head of Private Wealth at Saffery Champness, comments:

“With only a few days until the end of the tax year, now is the time to make the most of the allowances and reliefs available. Choosing to take advantage either at the end of the current tax year or beginning of the next can make the difference of thousands of pounds in the long-term.

“The Chancellor’s announcement slashing the tax-free dividend allowance from £5,000 to £2,000 means we can expect to see many more investing in ISAs, following last year’s fall in the number subscribed to. Meanwhile, pension tax relief is still very costly to the Chancellor, and anything that encourages people towards ISAs will be popular at HMRC.”

Mike Hodges, partner at Saffery Champness, comments:

“Venture Capital Schemes and Enterprise Investment Schemes are an increasingly attractive vehicle for people to gain capital gains tax relief on, although with the new crackdowns on low risk schemes investors must be careful.

“At the same time, while fewer people are donating, the amount being given to charities is on the rise, and with people finding new ways to donate their time and efforts, the relief available on donations of shares or property should not be dismissed. In addition to gifts to charity, gifts to family are another good way to ease the tax burden, and ensure an individual’s money is distributed according to their wishes.”

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James Hender

Partner, London

Key experience
James advises a wide range of families and individuals across the financial services and other commercial sectors. A large number...