Five End of Tax Year 2018/19 Considerations

The end of the tax year is fast approaching – its worth taking action now to use your allowances.

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  1. Rob Morgan

While many investors have their eye on political developments right now, its important not to ignore the perennial end of tax year tasks of making the most of tax allowances and exemptions.

Below are 5 main considerations for you to think about for the 2018/19 tax year.

1 Have you made the most of our ISA allowance?

You can shelter £20,000 with an ISA, often the first port of call for those looking to save tax. They are simple, flexible and tax-efficient.

The ISA allowance is available to any UK resident over 18 and can be split between different types - the most common being Cash and Stocks & Shares. Charles Stanley Direct offers Stocks and Shares ISAs.

Benefits of a ISA:

  • By using your full ISA allowance each year (£20,000 in the current 2018/19 tax year) it’s possible to build up a large pot of money sheltered from tax. ISA investments don’t need to be declared on a tax return, so they can also simplify your affairs. In the event of the death of a spouse/civil partner, the surviving spouse/civil partner can inherit the tax benefits.

ISAs are portable and can be transferred between providers without losing their tax free status. Additional benefits of a Stocks & Shares ISA:

  • Gains realised on the sale of stocks and shares within an ISA are free from capital gains tax (see task 4 for more information)
  • Any dividends or interest income are free of tax. This has become even more important since the amount an individual can receive in dividends without paying tax, the ‘dividend allowance’, was cut from £5,000 to £2,000 this tax year.
  • A Stocks & Shares ISA could deliver a higher return than Cash ISAs over the longer term, but remember that there is a risk the value of your investments could fall – especially in the short term.

2 Saving for your children’s future?

Junior ISA (JISAs) are a popular way for family and friends to build up tax-efficient savings and investments for a child. Withdrawals are possible from age 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house.

A parent or legal guardian of a child under the age of 18 and UK resident can open a Charles Stanley Direct Junior Stocks & Shares ISA. The parent or guardian is responsible for the management of the JISA and can make investment decisions, but the investments belong to the child. Investors can have either a cash JISA or a stocks and shares JISA, or one of each,

Benefits of a JISA:

  • By using your full JISA allowance each year (£4,260 in the current 2018/19 tax year) it’s possible to build up a large pot of money sheltered from tax.
  • Interest on a cash JISA is tax free,

Additional benefits of a Stocks & Shares JISA:

  • Gains realised on the sale of stocks and shares within an ISA are free from capital gains tax (see task 4 for more information)
  • Any dividends or interest income are free of tax

Grandparents, relatives or family friends can also contribute to the account as long as they have completed a Third Party Contribution form with us.

3 Are you optimising your pension contributions?

Almost everyone includes a comfortable retirement as one of their financial goals. Pensions are often a highly effective means of achieving this due to the tax relief available on payments into them.

Currently, anyone under 75 with relevant UK earnings can receive tax relief when they make a contribution within the annual allowance to a personal pension such as the Charles Stanley Direct SIPP. 20% is added by HMRC and any further higher or additional rate income tax relief can be reclaimed – a SIPP is potentially a simple way of reducing your income tax bill for the year.

An example:

An investor contributes £8,000 into their SIPP and £2,000 is claimed back from HMRC by the pension provider.  A higher rate tax payer could claim back up to a further 20% via their tax return, reducing the overall cost of the contribution to as little as £6,000. In the same instance, additional rate tax payers could claim back up to a further 25% making the cost just £5,500 for a £10,000 contribution. Please note that rates of income tax and relief differ in Scotland.

4 Considering whether you should use your CGT allowance?

Capital Gains Tax is the tax you pay when you realise a profitable investment – unless it is in a tax efficient wrapper such as an ISA or pension.

This 2018/19 tax year you can realise profits on investments of up to £11,700 free from capital gains tax (CGT). The rates payable on Capital Gains Tax are 10% basic rate and 20% higher rate, but on residential property (other than your own home) the rates are 18% and 28% respectively. Your rate of capital gains tax will depend on your taxable income.

It’s not possible to carry the CGT allowance over to the next tax year. Therefore if you are planning to sell assets that have gone up in value more than your capital gains tax allowance it may make sense to split this over more than one tax year. CGT is not payable when assets are transferred to a spouse or civil partner. 

There may be opportunities to make use of the annual exemption if you hold investments in a general investment account by selling investments and purchasing them back within an ISA or a Pension. This way assets are transferred from a taxable environment to a largely tax free one.

5 Thinking about Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate (the property, money and possessions) of someone who's died. It is currently payable at a rate of 40% on estates worth over a basic allowance threshold of £325,000.

Married couples and Civil Partners can pass their thresholds between them meaning that there is normally nothing to pay on the first £650,000 of a joint estate. A ‘main residence’ allowance in respect of family homes under £1m in value increases this figure to £900,000 at present, and this will rise incrementally to £1m by 2020.

The simplest way to reduce the size of your estate, and a potential IHT bill, is to gift money to others, perhaps children or grandchildren to help them out financially. Gifts exempt from IHT include an annual £3,000 lump sum, which can be given to one person or divided between a number of people, plus £250 a year to as many people as you like.

 

The Taxation of pensions is based on individual circumstances and may be subject to change in the future.

The information contained within this article is based on our understanding of current UK tax provisions, which is subject to change, and the benefits of which would depend on your personal circumstances.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after 

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