Year-End Planning Series – Part 1: Income Tax

With the tax year-end fast approaching, over the next four weeks we’ll be covering the key things you need to consider to ensure your financial affairs are in good order. This will cover in brief Income Tax, Pensions, Capital Gains & Inheritance Tax and Tax Administration.

In this first part we cover Income Tax and some of the main things that you and your family should consider before the year-end.

Those with a total income in excess of £150,000 pa will pay income tax at a rate of 45% (additional rate) however individuals with an income between £100,000 and £123,000 pa are subject to a marginal tax rate of 60% due to the phased removal of their personal allowance. Below are some options for considerations for those individuals on how to manage income in a more tax effective manner.

1. Transferring assets to your spouse or civil partner

If you have a spouse or civil partner who doesn’t have the sufficient income to utilise their personal allowance which is currently up to £11,850, it is possible that you can gift income-producing assets to them. This also applies if their income is in the nil, basic or higher rate tax bands.

2. Reduction in the dividend allowance

This tax year (2017/2018) the dividend nil rate band is £5,000 this is income whereby no tax is charged on dividends within this band. However, next tax year (2018/2019) this will be reduced to a dividend nil rate band of £2,000.

3. Preserving your personal allowance

For those earning an income between £100,000 and £123,000 in the current tax year (2017/2018) your personal allowance is being phased out meaning an effective rate of up to 60% within this income bracket. One way to overcome this would be to consider pension contributions or charitable donations. Pension contributions will be covered in a further RBulletin.

4. Charitable donations

For those close to a tax band threshold, charitable donations can be made to mitigate income tax. Tax relief is available for cash gifts to UK registered charities, however please be aware that charitable donations not made in cash form should be reviewed with your accountant.

5. Are your investments held in a sensible structure?

Currently the rate of corporation tax is 19%, reducing to 17% from 1 April 2020. You should consider corporation, income and capital gains tax rates in determining the right structure for investment holdings.

At RB we tax plan with our clients throughout the financial year, but if any of these ideas have struck a chord or reinforced an idea that has been left with you by your adviser please contact us to discuss.

Released next week will be part 2 focusing on Pensions.