Time for a tax spring clean
MARCH 1 marked the start of spring in the meteorological calendar. In addition to any spring cleaning around the house, now is a good time to pay some attention to your tax affairs before this tax year ends on April 5.
The first thing to think about is whether you (and your spouse or civil partner) are maximising your available personal allowances and tax bands.
Outright gifts of income-producing assets are a potential consideration, as they could benefit you in future tax years. Furthermore, there are now a number of important ‘thresholds' for income tax - at income of £45,000 (40 per cent rate threshold), £50,000 (child benefit starts to be clawed back), £100,000 (personal allowances starts to be tapered away), and £150,000 (45 per cent rate threshold).
There are also additional allowances for savings income (see www.gov.uk/apply-tax-free-interest-on-savings) and dividend income (see www.gov.uk/tax-on-dividends), which need to be considered.
The next thing to contemplate is whether or not you should invest in an Individual Savings Account (ISA). For many people, because of the additional savings allowances (highlighted above) an ISA has become less relevant.
It is possible, however, for an adult to invest £20,000 in an ISA each year and any income and gains will be tax-free in the future. You can invest in a cash ISA and/or a stocks and shares ISA, depending upon your investment objectives. There are a number of different ISAs (including Junior ISAs for those under 18) and further information is provided at www.gov.uk/individual-savings-accounts.
A good tax-efficient and future planning exercise is to maximise your pension contributions. The maximum contribution in any tax year is £40,000 but any unused allowances in the previous three tax years can be carried forward into this tax year (2018/19), subject to various earnings requirements.
This is a complex area and specialist advice is essential. In addition to considering the tax aspects, it is always good practice to regularly review how much you are saving towards your retirement.
A final aspect to consider is your inheritance tax (IHT) position, and whether your will is up to date and properly reflects your wishes. IHT is charged at 40 per cent of the value of assets in the estate of a person at the date of death, including gifts in the previous seven years.
There is a zero-rate band of £325,000 per person, which amounts £650,000 per couple, which means only larger estates will be liable for IHT.
Sitting down with your accountant and/or financial adviser over the next few weeks could yield significant savings for this year and many springs to come in the future.
:: Louise Kelly is audit partner at Grant Thornton in Belfast