Each year, UK taxpayers waste billions of pounds by paying tax unnecessarily or failing to claim tax relief that was due to them. It’s worth spending time thinking about the tax allowances that are available on savings and investments and aiming to put them to good use during the remainder of the current tax year. Try not leaving it to the last minute!
This is the amount of income you can earn or receive in a year without paying tax and, for 2018/19, is £ £11,850.
From the 2018/19, the annual overall ISA allowance remains at £20,000. A further option, a Lifetime ISA, can form up to £4,000 of the £20,000 ISA allowance for those eligible. Available to UK residents aged between 18 and 40 saving for retirement or a house deposit, it is possible to pay in up to £4,000 each tax year and continue making contributions up to the age of 50. The government will add a 25 per cent bonus to contributions – a maximum of £1,000 each year.
The Junior ISA allowance has risen to £4,260. A parent or legal guardian of an eligible child can open a Junior Stocks & Shares ISA, manage the account and make the investment decisions. Grandparents, relatives or family friends can then also contribute at any time up to the annual investment limit.
For all UK taxpayers, the first £2,000 of dividend income in each tax year requires no additional payment of tax – this is known as the Dividend Allowance. Dividends received above this allowance are taxed as follows:
Basic rate taxpayers 7.5 per cent
Higher rate taxpayers 32.5 per cent
Additional rate taxpayers 38.1 per cent
The Dividend Allowance has fallen from £5,000 to £2,000 for the 2018/19 tax year, which means tax shelters such as ISAs could be even more important. It is separate to the income tax personal allowance and the personal savings allowance (see below).
Capital gains tax (CGT) allowance
The capital gains tax ‘annual exempt amount’ (the maximum profit you can make on selling assets without paying capital gains tax) is £11,700.
The rates payable on Capital Gains Tax are 10 per cent basic rate and 20 per cent higher rate, but on residential property (other than your own home) the rates are 18 per cent and 28 per cent respectively. Your rate of capital gains tax will depend on your other taxable income.
The maximum that can be contributed to all your pensions during the tax year and receive tax relief (known as the ‘annual allowance’) remains at £40,000. Income tax relief on personal contributions is generally limited to your relevant UK earnings for the tax year. Currently, an investor can receive up to 45 per cent tax relief when they make a personal contribution to a personal pension such as a SIPP, with 20 per cent tax relief paid by the HMRC to the pension and any higher and additional rate tax relief reclaimable.
Gifts that are automatically free from Inheritance Tax
Gifts of no more than £250 to individual recipients per tax year are excluded from inheritance tax (and are not counted toward the £3000 annual gift exemption). This is particularly useful for those with large families.
For example, someone with 10 grandchildren could give each of them £250 annually and the gifts would not be taken into account in calculating the value of their estate.
Again, the small gifts exception exists for individuals so both grandparents could give £250 to each grandchild if they wished.
Small gifts of up to £250 are not counted toward the £3000 annual exemption – although you cannot combine a small gift with the annual exemption and give an individual £3,250.
If you did and were to die within seven years of making the gift then £250 (i.e. the part in excess of your allowance) of it would be added back into the value of your state for the calculation of IHT/use of the allowances available to an estate on death.
Each tax year, you can also make gifts to individuals for certain occasions, without running the risk of inheritance tax being payable on your death.
For example, you can make wedding or civil partnership gifts of up to £1,000 per person, £2,500 for a grandchild or great-grandchild and £5,000 for your child.
Again, these gifts are exclusive of the annual exemption and small gift allowance.
Gifts to charities are exempt from IHT, as are gifts between spouses. Gifting between spouses can be a useful way to split the risks of lifetime gifts.
If you’ve yet to use your 2018/19 ISA allowance, call our investment broker team on 01273 447299 or email email@example.com
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As always this article is not to be deemed as advice. It is the writer’s personal opinions. No decisions should be made based on the contents of this article but further professional advice should be sought from a regulated financial advisor.
IMPORTANT: Tax treatment depends on individual circumstances. Tax treatment, rates and allowances are subject to change. The value of any investments can go down as well as up and you might not get back what you put in. You may have difficulty selling any investment at a reasonable price and in some circumstances if might be difficult to sell at any price. Do not invest unless you have carefully thought about whether you can afford it and whether it is right for you and if necessary consult with a professional adviser.
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