2018/19 Tax-year end: What are the things I might want to do?

1. Maximise pension tax relief: It is possible to get tax relief between 40%-60% if you earn over £46,350. Tax relief at these rates might not be around forever and it is possible to bring forward up to three years of historic unused allowances. This means some people have up to £160,000 they can pay in in the current tax year. Previous years’ pension contributions will need to be taken into consideration.

2. Avoid the “tapered annual allowance”: by making significant personal pension contributions. For those with £150,000 income from all sources, including employer pension contributions, they will find that their annual allowance is “tapered” i.e. reduced for £1 of annual allowance for every £2 of income over these figures. By making a pension contribution that brings you below £110,000 the tapering ceases to apply, and invariably the personal allowance (lost above £100,000 – see below) can be regained for effective tax relief of 60%. For example, an individual earning £180,000 with a £10,000 employer contribution (i.e. £190,000 total) would need to pay at least £80,000 (assuming they have relevant carry forward allowances) to avoid being tapered at all. Worse still, on 6th April 2019 all non-tapered years will drop off; and this is where the new rules can really bite.

3. Avoid the loss of personal allowance: For those earning between £100,000 and £123,700 the personal allowance is also tapered away meaning an effective tax rate in this bracket of 60%. For any individual earning £100,000, particularly those that would have tapered annual pension allowances, a contribution that brings them below £100,000 has a double benefit – firstly getting tax relief at rates of up to 60%, and secondly meaning they have no tapered annual allowance this year increasing what they can pay in in the current and future tax years.

4. Swap bonus or salary for pension: for those who receive annual bonuses around March an employer contribution in lieu of a bonus can be particularly tax effective. In addition to getting pension tax relief at 40%-60% an employer will save 13.8% national insurance and an individual will save 2% national insurance. This can add a further sum in excess of 15% to the
   tax relief granted.

5. Be aware of dividend changes: from 6th April 2018 individuals can only receive £2,000 of dividend – irrespective of their other income – before they pay additional tax charges. For basic rate tax payers, the charge starts at 7.5% but for higher rate tax payers it is 32.5%. Whilst we to prefer dividend income over any other for business owners this could be a time to either pay dividends before 6th April if they control the companies, or to rebalance their portfolios if they have direct equity investments.

6. Maximise ISA contributions: ISAs are tax privileged and for those that have deposits they can afford to invest or investments that are not already held in ISAs their £20,000 limit will expire on 5th April 2019 and this is replaced with another £20,000 allowance on 6th April 2019. Generally speaking, those that use their ISA allowance soonest have the best results and we would suggest using your allowances at your first opportunity. This could be into cash or investments.

7. Consider making use of your CGT allowance: in 2018/19 the CGT allowance is £11,700 but even gains above this level are usually only 10%-20% (excluding property gains) – the lowest it has been for some time. Capital gains tax rates may change in the future and for those who have not used their capital gains tax allowance this could be a time to improve the
   efficiency of their portfolios by either withdrawing funds from an investment portfolio or making changes that otherwise might incur tax in the future.

8. Consider withdrawals from international portfolio bonds: For those who have life assurance bonds based in other jurisdictions, investment growth is ordinarily tax-free but the proceeds are subject to income tax. In the 2018/19 tax year non-taxpayers can have up to £17,850 of chargeable gains and proceeds far in excess of this without any tax to pay. The benefit of tax deferred growth, with no tax to the end is clearly appealing and remember that these bonds can be “assigned” to other family members without creating a tax charge.

9. For those under 40 or with children under 40 there are other tax efficient investments that include:
   1. Lifetime ISAs which allow an individual to receive £1,000 of “savers bonus” and receive the proceeds tax free where it is used to either buy a first home (restrictions do apply) or at the age of 60.
   2. Junior ISAs are valuable for the children under the age of 18 with an allowance of £4,260
   3. Pension contributions can be made on anybody’s behalf (subject to anti-money laundering provisions, and the recipient being under 75), with tax relief granted up to £3,600 where there are no earnings, or more, if earnings permit. This means a cheque for £2,880 even if paid into a non-earning child will be grossed up automatically by £720 to £3,600, although the benefits cannot be accessed until 55 at the earliest, it does grow free of income, capital gains and normally inheritance tax.

10. Look to the year ahead: extending the above points here are
    some rules of thumb:

1. Avoid earning just above £50,000 or £100,000 these are “cliff-edge” tax thresholds being 20% → 40%, 40% → 60% and 40% → 45%. For those with children who might otherwise qualify for child benefit the £50,000 threshold can be far worse

2. Consider the other benefits of a salary exchange, on a monthly basis

3. Plan to see if you can make gains of up to £12,000; the new capital gains tax allowance from 6th April 2019. Any gains you might make today could be potentially spread over two tax-years without significant downsides

NB: The nature of the above is necessarily simplified, so if you believe any of the above could apply to you in the 2018/19 tax-year please do get in touch.