If you are the owner manager of your own company and you have distributable profits
a) you and your family take advantage of the £2000 tax free dividend band.
b) vote sufficient dividends to make best use of your tax allowances and tax bands.
Don’t leave it too late, dividends cannot be back dated.
If your spouse pays tax at a lower rate than you, you could transfer some shares to them, and then vote a dividend.
Are you eligible for the ‘Marriage Allowance’
If you are married or in a civil partnership and your income is less than your Personal Allowance (or you don’t pay Income Tax), and your spouse earns less than £46,350 (in 2018/19), it is possible to transfer up to 10% of your Personal Allowance (worth £1190 in 2018/19) to your partner. This can reduce their tax bill in 2018/19 by £238 (£1190 x 20%) , and you can backdate the claim to 6.4.2015 (when this tax reducer was first introduced), so you may be looking at a tax benefit close to £1000 .
The claim must be made online at https://www.gov.uk/marriage-allowance. It cannot be claimed on your Tax return or otherwise.
(NB. If you or your spouse was born before 6.4.1935 it may be better to claim Married Couples Allowance)
Make pension contributions
Making pension contributions can result in significant tax benefits; eg, reducing your taxable income in the year of contribution, tax free growth, and IHT savings.
The maximum you can obtain tax relief on is the amount you earn in the tax year (up to a maximum of £40,000), or £3,600. Any unused capacity from the previous 3 years can increase the allowable contribution to as much as £160,000.
If you earn more than £150,000 per annum the £40k maxim is restrricted by £1 for every £2 over £150k, but subject to a maximum restriction of £30k.
Consider transferring income producing assets to other family members
It is s bit late for this to have much effect in the year ending 5th April 2019, but the next tax year is nearly here already, so see https://suttonstax.co.uk/blog/post/how-you-own-property-affects-tax-payable and https://suttonstax.co.uk/blog/post/income-splitting-and-shifting-reduce-tax-liabilities to get an idea of the possibilities.
Use Entrepreneur’s Relief (ER)
A 10% Capital Gains Tax (CGT) rate applies to assets which qualify for ER, up to a lifetime limit of £10 million. That is half the rate applicable if ER isn’t available.
So, if you are planning to sell a qualifying asset (eg, a trading business or shares in an unquoted trading company) in the near future but haven’t owned it for any length of time, beware changes that come into force on 6.4.19.
To qualify for ER you currently only need to meet the conditions for a 12 month period, but from 6.4.19 the period is only 24 months. Don’t get caught out!
Use the annual Capital Gains Tax (CGT) exemption
The current annual exemption is £11,700 and it has to be used each year or it is lost. If you haven’t used it already, consider selling an asset that stands at a gain to do so.
If you have already used up your annual CGT exemption and are facing a CGT bill, consider selling any asset that stands at a loss to reduce tax payable.
Invest in Enterprise Incentive Schemes (EIS) or Seed Enterprise Investment Scehemes (SEIS)
These types of investment can be risky, but the tax incentives are tempting!
With both schemes, you can defer tax on capital gains you have already made, and get Income Tax relief on the sum invested, and future disposals are CGT (after a minimum holding period).
An EIS investment will give you 30% Income Tax Relief tax relief on up to £1m invested (or up to £2m if the company is ‘knowledge intensive’)
An SEIS investment wil give you 50% tax relief on investments up to £100,000.
It is possible to actually make your investment in 2019/20 but claim relief in 2018/19.
Invest in ISAs
The return on ISAs is tax free, whether income or capital. If you’re over 18 you can invest up to £20k in an adult ISA in 2019/20.
Gift money to save Inheritance Tax
If your estate is likely to suffer an charge to Inheritance Tax charge, you may wish to consider lifetime gifts.
Most lifetime gifts are caught by an Inheritance Tax charge if you don’t survive the gift by 7 years; however the following gifts are not caught by the 7 year rule:
- up to £3,000 in 2018/19, or £6,000 if you didn’t use the 2017/18 allowance (the allowance can be carried forward one year).
- up to £250 per individual re ‘small gifts’.
- any ‘regular’ gifts out of ‘income’
- a £5000 marriage gift made by parents, a £2,500 marriage gift made by grandparents, a £1000 marriage gift made by anyone else.
The above list is by no means exhaustive, and most taxpayers will certainly benefit from good tax planing planning advice. I am a Chartered Tax Advisor, so if you need practical and reliable help with your tax affairs call me on 015394 32540 or 07881 286903, or email firstname.lastname@example.org, for an initial conversation.