Help! It’s that mad time of year again! Which tax efficient allowances are you meant to be making the most of before the 5th April?
If you put a priority on these 10 tax saving opportunities, you should feel a little less regretful come the 6th April.
1. Use your ISA allowance
Everybody has an ISA allowance of £20,000 for the 2017/18 tax year. There are very few things in this world that are tax free, so making the most of your annual tax free ISA allowance is an opportunity no-one should miss if they can help it.
While you’re at it, why not set up a regular monthly payment into your ISA for the next tax year. If nothing else, it’ll mean one less thing to do this time next year!
2. Reduce your inheritance tax bill
All doctors and dentists can give away £3,000 a year without any inheritance tax liability. If you didn’t use your £3,000 gift limit last year, you can carry this forward and gift a total of £6,000 inheritance tax free this tax year.
And that’s not all. You can gift:
- As many small gifts of £250 as you like;
- £5,000 to your children when they get married or enter into a civil partnership;
- £2,500 to your grandchildren when they get married or enter into a civil partnership;
- £1,000 to anyone else when they get married or enter into a civil partnership.
Now is the time to use as many annual exemptions as you can to reduce the value of your overall estate, and minimise the amount of inheritance tax your family will have to pay when you die.
3. Use your Capital Gains Tax (CGT) exemption allowance
Every adult has an annual CGT exemption allowance of £11,300 per person (£22,600 a couple). Stocks and Shares ISAs and your main residence are exempt from capital gains tax, but other valuables over £6,000, stocks and shares outside of ISAs, and other properties are all liable for CGT.
You can’t carry over your capital gains tax allowance into the next year either. Once the tax year ends, your CGT allowance for that year is gone forever. It’s an expensive missed opportunity if you don’t use at least some of your CGT allowance each year.
4. Decide which childcare funding scheme is right for you
You can currently get tax free help with childcare costs through one of two schemes:
- The new Childcare Choices scheme which was launched in April 2017 or,
- The existing childcare vouchers scheme.
Comparing the two childcare funding systems and deciding which one best suits your family is definitely worth doing, but you’d better be quick! If you intend to start using childcare vouchers, you have until April 2018 to register for the scheme.
5. Use your Annual Investment Allowance if you’re a sole trader
Self-employed doctors and dentists are classified by the HMRC as ‘sole traders’. Sole traders can make use of an Annual Investment Allowance (AIA) which allows you to make capital purchases and gain tax relief. This can include the purchase of phones and computers that you use to benefit your business.
Exactly what is and isn’t allowed in your AIA can be a bit of a grey area, so you’d be wise to get your skates on and check with your accountant. You never know, there may be an eligible purchase you can include in this year’s allowance.
6. Check your tax code
If you’re a doctor or dentist employed in a single role, your tax code should in theory be correct, yet in reality it isn’t always.
If you’re self-employed or have more than one job, making sure you are on the right tax code is much more complicated.
Whatever your employment status is, it’s worth checking your tax code and seeking advice if you want to be sure it’s correct.
7. Use your personal savings allowance
In addition to your ISA allowances, basic and higher rate tax payers also have a personal savings allowance. It means you can earn a certain amount of interest on any non-ISA savings you have, without having to pay tax:
- For basic rate tax payers, your personal savings allowance is £1,000 a year;
- For higher rate tax payers, your personal savings allowance is £500 a year.
Sadly, additional rate tax payers do not have a personal savings allowance.
8. Save for your children
With the Junior ISA allowance for 2017/18 sitting at £4,128, your children will thank you one day if you make use of this valuable tax efficient long-term savings plan.
Even if you’re not able to put aside the full allowance, whatever you save into a Junior ISA will benefit from compound interest for many years and be a wonderful windfall for your children in the future. It could even help fund their university fees!
9. Check if you have any pension allowance issues
If you don’t know what your annual pension allowance or your lifetime pension allowance is, let alone whether or not you’re likely to breach either or both, it’s time to get to grips with your pension. Don’t assume they don’t affect you!
10. Use your dividend allowance
From the 6th April 2016, the notional 10% tax credit on dividends was abolished and a £5,000 tax free dividend allowance was introduced.
From the 6th April 2018, the tax-free dividend allowance reduces to £2,000. Any dividends you earn above this £2,000 limit will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
You should also note that:
- Dividends received by pensions and ISAs are not included;
- Dividend income is treated as the top band of income;
- If you receive dividends of more than the limit and you are a basic rate tax payer, you need to complete a self-assessment tax return.
Phew! So much to think about and do, yet so little time left to actually do it. Even if you don’t manage to tick every box, try and set the wheels in motion for the next tax year so you don’t have such a rush again.
And, as always, if any or all of the above is just too time consuming or daunting for you, give us a call and we’ll guide you through the process.
Which of the above will be your biggest regret if you don’t manage to make the most of it before the end of the tax year? Let us know by adding a comment below