Tax Tips

This is just general guidance for you to review to ensure you made made the most of any allowances before the end of the 2016/2017 tax year.

2016/2017 Planning Tips

The personal allowance for this year is £11,000.00 and for non savings and non dividend income, the tax rates are 20%, 40% and 45%.

Income between £100,000.00 and £122,000.00 means you start to lose the personal allowance so by the time income gets to £122,000.00, it has all gone.

Marriage Transfer Allowance

If you are married or in a civil partnership, you can transfer £1,100.00 of your personal allowance to your spouse or civil partner.  It only works if one person is a zero taxpayer and the other a 20% taxpayer.  You cannot do the transfer if either person is a 40% / 45% payer.

Tax on Savings

Interest from banks and building societies is now being paid gross whether you are a taxpayer or not.  If you are a basic (20%) taxpayer, you can receive up to £1,000.00 of interest tax free.  If you pay the higher rate of 40%, then you receive up to £500.00 interest tax free.  This is in addition to the personal allowance.

Dividends

From 2016/2017, the new dividend tax kicks in.  The first £5,000.00 of dividend income above your personal allowance is tax free.  After that, a 20% tax payer pays 7.5% and a 40% tax payer will pay 32.5%.  If you are in control of your company’s dividend policy, it may be worth looking at your personal tax situation and plan dividends to best make use of the allowance and not take you into the high rate bracket.

Rent a Room

The relief for an individual went up from £7,500.00 per tax year (not per room) so if you fancy a lodger and making a bit of money, you could do this for a short period.   This is not for really for Airbnb rooms as that is a separate B&B business.

ISAs

Individuals over 18 can invest up to £15,240.00 in an ISA.  The growth, income and dividends from it are tax free for income tax and capital gains tax, but being morbid they form part of a taxable estate for inheritance tax.  More importantly, the count as savings for any means tested benefits.  ISAs are normally readily available but may have scheme rules on the length of investment etc.

For those aged 17 and under, investment in a junior ISA is available up to £4,080.00.

There are also ‘Help to Buy’ ISAs for those over 16 who want to save up to £200.00 per month to buy their first home.

We are not financial advisers so cannot recommend any investments so you may want to get independent advice and, if funds are available, make use of the ISA allowance.

Pension Contributions

There are limits on how much pension can be put aside each year by yourself or on your behalf.  For those with an income of less than £150,000.00, the maximum is £40,000.00 but it is possible to carry forward unused allowances for 3 years prior but the pension scheme must have existed and some payments being made.  It is therefore important to ensure pension contributions are shown on the tax return even if no obvious tax implication at the time.

Inheritance Tax

This is an area we tend to leave to the specialists but there are annual allowances you can use if you want to mitigate estate taxes:

• Annual £3,000.00 exception to give money away.
• Gifts out of income (these can be receiving gifts out of income each month/year provided proven it is regular and no capital has been encashed in order to pay).
• Gifts on married or civil partnership.

Gifts or transfers within 7 years of death, not qualifying in the above, are added back to the estate for inheritance tax purposes but those made between 3 and 7 years have a tapered reduction.

Capital Gains Tax (CGT)

A person can make a tax free gain of up to £11,100.00 before any tax kicks in.  Gains above £11,100 are subject to the income tax rate the person is subject to.  Married couples and civil partners have £11,100.00 each.

So if a gain is made of £17,200.00, tax free amount is £11,100.00 so that means £6,100.00 is to be charged CGT.  That will be charged at 10% to take a person’s total income to £32,000.00 (the 20% tax level) and then charged at 20% above that point.

Residential property is at 18% or 28% respectively if it does not qualify for private residence relief.  See website FAQs for this.

Tax Credits

For people receiving tax credits, to ensure they’re reviewed on time, your income and tax return needs to be completed in July.  Otherwise you will need to be doing estimates and possibly playing catch up to the end of the year and may have to refund payments received.  The sooner we get all the information from you to file the return, the more comfort you can get when dealing with benefits people.

It’s the same for parents having to deal with student loan authorities.  They assume all parents are in employment and will therefore have access to their tax documentation at the end of May/June in order to complete and submit the necessary forms soon after.

The more organised you up your paperwork and accounts, the sooner we can make it happen for you.

Child Benefit

If you or your spouse, civil partner, person living with you who has childcare responsibilities, earns over £50,000.00, then part/all of the child benefit will need to be repaid via the higher tax earner’s tax return.  It is tapered but by £60,000.00 for one earner, still has to be paid back.  Be aware of the timescales for repayment; you may be paid the benefit on a weekly basis, but you need to ensure you have the money in order to repay it on 31 January.

One solution is to not have it paid to you at all if the higher earner is always going to be over £60,000.00.  BUT always claim the benefit even if it is not paid as that still allows the ‘stay at home’/low earner to collect their full National Insurance stamp so no gaps should appear in contributions.

Payment on Account

Should you need to make a payment on account for your self assessment (see blog page), then the second instalment is due 31 July.  However, you may not need to pay it.  Doing your tax return early in the period means you’ll know if the amount really is due, if there’s more to pay or whether it is payable at all.  The problem with being self employed/freelance is that you could have a really good year (equals higher tax bill) followed by a pretty poor year.  If you have to make a payment on account in your poor year, it is going to give you financial problems.  But, by doing the tax return in May or June it can mean you don’t need to make that 31 July payment and you may even get a refund for some of the payment on account already paid.  Surely peace of mind is worth keeping things up to date and ready.

Therefore we actively encourage people who have to make a payment on account to get their return done in June/early July to know where they stand with the taxman.

Upcoming Changes

Some changes in future years are already known but may need to be considered so you know how to react to them when they come up.

Making Tax Digital

This is an ongoing topic and final decisions on the threshold of those self employed/freelance being caught by this has not yet been made known (as at 25 February 2017).  It is a topic we are following very closely as the majority of our clients are potentially caught by this if the £10,000.00 turnover is not changed.

Personal Allowance

Personal allowance for 2017/18 is £11,500.00 with the basic rate of tax (20%) up to £33,500.  That means an individual can earn up to £45,000.00 before hitting the 40% tax bracket.  In Scotland, the higher rate threshold is proposed to be £43,430.00.  Sorry Scotland!

Low Property and Trading Income

An allowance of £1,000.00 for property income and trading income is being given.  So if you only earn a little bit from Airbnb or rental of your driveway for Wimbledon parking, then there is no requirement to declare it.  If income is above £1,000.00, then it has to be logged on the tax return and expenses deducted in the normal business fashion.  This comes in in April 2017.

ISA’s

From April 2017 the annual subscription limit is £20,000.00.

Lifetime ISAs

Available to adults under 40 as at April 2017.  Individuals can invest up to £40,000.00 per year and get a 25% bonus from the government up to age 50.  The money needs to stay in for at least a year and the funds, plus the bonus, can be used to purchase a first home or retirement funds can be withdrawn from the age of 60.  If funds are withdrawn earlier than that, they may be subject to a 25% withdrawal charge.

Speak to a financial adviser regarding this.  NB home purchase price must be less than £450,000.00.

There is a great article online at www.moneysavingexpert.com/savings/lifetime-ISAs.

Class 2 NI

This is going to disappear from 6 April 2018 so changes will be made to Class 4 and what it represents.  Before then, you may want to look to see if there are any holes in your contribution years, as the only way to keep pension benefit going if you one not on the Class 4 radar, is to pay Class 3 NI which is currently £14.10 per week.  A far cry from Class 2 NI of £2.80 per week.

UK Non Domiciled Taxation

From April 2017 if the non domiciled individual has been resident in the UK for 15 of the past 20 years, they will be deemed domiciled in the UK.

If you have any questions, please email us at info@performanceaccountancy.co.uk and we will do our best to help.