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Year-end tax planning: A 10-point checklist

Ask yourself these 10 questions now to ensure you’re getting the full benefit from important tax allowances and reliefs.

The end of the 2017/18 tax year cometh: are you ready? According to Investec Private Banker Martyn Smith, now is the perfect time to focus on your finances to ensure you’ve made full use of valuable allowances and reliefs before the April 5 deadline. Here are 10 key questions to ask yourself:

Martyn Smith

Martyn Smith, Investec Private Banker.

1. Have you reviewed your pension arrangements?
A good first step is to review your pension arrangements. The amount that can be contributed to your pension each year, while still receiving tax relief, is based on your earnings for the year and is capped at £40,000. There are, of course, variations on this, especially for business owners. But a review is a good idea for everyone.

2. Do you have a cash ISA or stocks and shares ISA?
Your money goes into an individual savings account (ISA) after tax is deducted on your income, and any gain from the ISA investment is returned tax-free. ISAs take two forms: cash or stocks and shares. The annual allowance is currently £20,000, and this can be invested between the two in any proportion, subject to not exceeding the £20,000 annual limit. Some providers allow you to move your money back and forth, while others offer flexibility in terms of putting money in and taking it out within the same tax year. Be sure to read and understand the terms of the ISA provider to determine what will work for you.

3. Are you younger than 40?
The lifetime ISA was introduced to help individuals buy property or plan for retirement. You have to be older than 18 but younger than 40 to open a lifetime ISA. A maximum of £4,000 can be contributed each year until you’re 50 – and the government will add a 25 percent bonus to your savings annually. Do note that the £4,000 counts towards your annual ISA allowance.

4. Do you have children younger than 18?
Parents can put money into a junior ISA for children under 18. If you open a regular savings account for your child, any interest over £100 becomes taxable income for the parent. Money in a junior ISA isn’t taxable, though the parent does relinquish control – the money can’t be taken out before the child is 18. When the child reaches age 18, the junior ISA can be converted into a normal adult ISA, and anything within becomes their money.

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5. Do you operate through a company?
If so, then you can take out funds in two ways: through a salary (via the normal pay as you earn system) and through dividends. The current tax-free allowance on dividends is £5,000, but from April 6 this will fall to £2,000 per year. If you take additional dividends, you then pay a rate according to your income tax band. Selling shares in the business maybe an option for some. There is an annual capital gains tax (CGT) free allowance of £11,300 on any profit made on these (or any other shares you hold).

6. Would you like to invest in a start-up?
There are various opportunities for investors to get tax relief when they invest their money in a new business, including the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT). If you’re looking to invest in a start-up, remember to go through an investment provider and ensure the company you are investing in has been approved for one of these schemes.

7. Have you given to charity?
If you are employed and have paid Gift Aid donations to registered charities, you can declare that on your self-assessment tax form and receive relief on it. Equally, if your business has donated to a registered charity, those donations are also entitled to tax relief.

8. Do you have stocks and shares?
The capital gains allowance allows gains of up to £11,300 to be realised tax free in the current tax year. It is also worth bearing in mind, if you have a portfolio of stocks and shares which include some sitting at losses, it might be worth considering selling some of these and offset the resulting crystallised loss against gains realised in the same tax year. Any excess loss can then be carried forward into the following tax year to offset against future capital gains.

9. Are you thinking about selling your business?
If you have been thinking about selling your business, you could qualify for entrepreneur’s relief, which means you will pay CGT at 10 percent instead of 20 percent. There are certain conditions that have to be met, so care needs to be taken before entering into such a transaction.

10. What are your future financial plans?
The end of the tax year could be a really good time to take a step back, think about your financial plans for the future and talk them through with a financial adviser. They can help you use this year’s tax reliefs appropriately and start putting plans in place for the future based on your personal circumstances and financial ambitions.

Disclaimer:
This article is for general information purposes only and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a financial or tax advisors if you need further advice or assistance.