5.5 Top Tax Tips to Pay Less Tax

top tax tipsIt’s nearly the end of the tax year, but with our “5.5 top tax tips to pay less tax” you still have time to make a difference to your tax bill!

We have also created blogs on What the New Tax Year Means for you Personally, and What The New Tax Year Means for your Business.

As always our App has all of the latest tax rates and allowances, as well as lots of handy calculators.

 

We would always advise speaking to us directly about any tax planning you are considering, but the following are fairly straightforward top tax tips to help you to look at your personal tax affairs with a view to making sure that you are making the most of tax allowances and reliefs for the current tax year, which ends on 5 April 2018.

 

1.  Use up your Tax Free Dividend Allowance

Every UK taxpayer has a tax free dividend allowance of £5,000 for the year to 5 April 2018.  This means that dividends received up to this amount won’t be taxed.  This is in addition to your personal tax allowance.

From 6 April 2018 this tax free dividend allowance drops to £2,000.

Action: If you are a shareholder in your own company and the company has profits available, make sure the company has paid you dividends up to £5,000 this year.

Considerations:  Are there other shareholders in your company affected?  Is your spouse or partner using up their tax free dividend allowance?  Speak to us for an estimate on how much you can take out of your company in dividends, and how this will affect your personal tax.

2.  Use up your ISA Limits

An ISA is an Individual Savings Account that is exempt from income tax.  For the year to 5 April 2018 you can save up to £20,000 per ISA (Junior ISAs savings limit is £4,260, for 16 to 18 year olds)

Action: Move savings into an ISA before 5 April.

Considerations: Are you using your children’s Junior ISA limits?

3.  Transfer Unused Married Couple’s Allowance

If you or your spouse or civil partner are not using your Married Couple’s Allowance (MCA) you can apply to transfer some of the unused allowance up to £1,150 to the other spouse or civil partner.  This will reduce their tax by £230.

The personal allowance for the year to 5 April 2018 is £11,500, so if any of this is spare it may be worth considering transferring it.

Action: Check HMRC’s Marriage Allowance Calculator to see if you and your partner would save any tax by transferring the allowance.

Considerations: If one of you earns over £45,000 (£43,000 if you’re in Scotland) you are unable to transfer unused MCA.

4.   Make an HMRC Approved Investment

By investing in certain HMRC approved investment schemes you can reduce your tax by 30% or 50% of the amount invested.  For example if you invested £10,000 before 5 April 2018 you could reduce your tax bill for the same tax year by £3,000 or £5,000, depending on the type of scheme invested in.

Action: Get in touch with us or Kevin Morris our Independent Financial Advisor to discuss your suitability and requirements.

Considerations: The investment ties up your cash for 3 to 5 years, so make sure you wouldn’t need it before the en of the scheme.

 

5.  Make a Pension Contribution

If you’re a higher rate tax payer with a personal pension, any contributions you make in the tax year to 5 April 2018 will increase your basic rate tax band.  This means that contributions will push up your higher rate threshold.

For example, if you’re a higher rate tax payer with an income of £50,000, £5,000 of this will be taxed at higher rate.  However, if you make pension contributions of £5,000 this will push up your higher rate tax threshold from £45,000 to £50,000, saving you £1,000 in higher rate tax!

Action: Make a lump sum pension contribution before 5 April

Considerations: Speak to your pension provider to see whether you have spare annual pension allowance (you can currently only contribute up to £40,000 per year).

So those are our 5 top tips – do get in touch if you’d like to discuss any of the suggestions further.

 

But we promised you 5.5 tips though….. so here’s something to think about for next year:

Are you a Landlord and a Higher Rate Tax Payer?

Up until 5 April 2017, all landlords could deduct mortgage interest from their rental income, along with other allowable costs (repairs, agents’ fees etc).

From 6 April 2017 HMRC began phasing out mortgage interest tax relief for higher rate tax payers.  This means that by 6 April 2020 higher rate tax payers won’t be able to use mortgage interest to reduce their tax bill.

HMRC are phasing this in by reducing mortgage interest during the few next years as follows:

2017/18: 25%

2018/19: 50%

2019/20: 75%

2020/21:  100%

Action: Review your personal income to see if this will affect you.  Speak to us if you need to see how your tax and profits could change.

Considerations: Could you share the property with a spouse?  If you have more than 3 properties could you put them into a limited company.

We understand there is A LOT to think about here.  Please do contact us if you’d like a chat or more info.

Thank you for reading!

 

Sharon

 

**Please note the above content is for guidance only, and should not be taken as specific tax advice.  Always get specific tax advice relating to your personal tax situation.

 

 

 

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