Start early with your planning
Why not use your ISA and Pension allowances at the beginning of the tax year rather than waiting until March 2019 at the end of the current tax year, any growth achieved will at least be growing virtually tax free.
ISA allowances remain at £20,000 per individual, thus allowing a couple to invest £40,000 between them.
The allowances for a Junior ISA / Child Trust Fund have increased by £132.00 to £4,260 per child.
Bed and ISA
If you don’t have the capital on deposit and have investments which are in taxable investment accounts then it is possible to do a Bed and ISA. The idea is simple: you sell your non-ISA investments and then use the proceeds to buy them back immediately, but this time within your ISA using your annual tax-free allowance, meaning the assets are out of reach of the taxman.
It is possible to generate capital gains of up to £11,700 this year that will be exempt for capital gains tax, which can assist you with building more of your taxable investments into tax efficient investments. Again this allowance is per individual.
Any investment gains above this amount will be taxable, at either 10% or 20% dependent on your marginal rate of tax.
The only exception is people selling second properties, including buy-to-let investments. Capital gains on these investments will be charged at 18% for basic rate taxpayers, or 28% for higher and additional rate taxpayers.
The Annual Allowance is currently set at £40,000 per tax year, however your contribution cannot exceed 100% of your earnings unless you have unused relief from previous tax years.
There are some circumstances where an individual’s Annual Allowance will have been reduced to as little as £4,000 per tax year, so it is important to seek advice, as there are tax consequences if you exceed your Annual Allowance.
Making a pension contribution is an effective way of retaining some allowances and saving tax.
The lifetime pensions allowance has been increased for the 2018/19 tax year by £30,000 and now stands at £1,030,000.
Don’t forget that you can make pension contributions for each of your children and/or grandchildren up to £3,600 gross per annum.
The amount you can earn tax-free before you start paying income tax has risen by £350 to £11,850.
A basic rate tax payer will pay 20% on taxable income between £11,850 and £46,350. This means it is possible to earn up to £46,350 before you start paying tax at a rate of 40%.
Where your earnings exceed £100,000, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. This means if you earn more than £123,700 you will lose your tax-free personal allowance.
Where your earnings exceed £150,000, the additional rate of income tax of 45% is charged on all earnings above £150,000.
The dividend allowance has been cut this year (2018/19), with everyone receiving a £2,000 allowance down from £5,000 in previous years.
So if you don’t have other income you’ll be able to earn £13,850 tax-free when taking into account your personal allowance of £11,850.
The personal savings allowance
You might be able to reduce your tax bill further if you receive income from savings.
Basic rate taxpayers can now earn £1,000 from savings before they start paying income tax on savings income, higher rate taxpayers will only start paying tax on savings income over £500.
There is no savings allowance for additional rate taxpayers.
What to do next
Get in touch with one of our consultants who are on hand to guide you through making the most of all your tax free allowances.