Top ten tips: 2018/19 tax year reliefs

The new tax year only began on 6 April, but individuals should start planning now to ensure they do not miss out on valuable allowances that could save thousands on allowances and tax reliefs.

When it comes to tax, leaving important planning to the end of the tax year can cost thousands.

Now is the time to start planning for the new tax year ahead and ensure that you don’t miss out on valuable allowances which are otherwise lost.

Here are the top tips for making sure you take advantage of all the reliefs available and remember that individual landlords will only be able to deduct 50% of their mortgage interest (reduced from 75%) as a deduction against rental income, with the remaining 50% available as a basic rate tax credit.

10 new tax year resolutions

1. use the capital gains annual exemption of £11,700 for 2018/19 – it can’t be carried forward or transferred to another person (such as your spouse)

2. contribute to your ISA – the ISA allowance for 2018/19 remains at £20,000 but the Junior ISA allowance has increased slightly to £4,260 (for children under 18).  If you’re eligible, consider contributing up to £4,000 to a Lifetime ISA, but there are penalties for early withdrawal.  ISA allowances cannot be carried forward.

3. maximise the pension annual allowance of £40,000 (but tapered down for someone earning over £150,000 to a minimum of £10,000).  You can carry forward unused pension annual allowances for up to three years, so the 2015/16 allowance needs to be used by 5 April 2019.

4. stakeholder pensions for non-earning spouses and children – contribute £2,880 and effectively receive £720 free.

5. use the inheritance tax gift exemption of £3,000, which can be carried forward one year.

6. consider transferring income producing assets to the lower earning spouse to utilise their personal allowance and lower tax bands.  By doing this early, it allows for more of the tax year to generate the sufficient income to fully utilise the personal allowance and lower tax bands.

7. submit claims for overpaid tax and capital losses relating to the 2014/15 tax year before 5 April 2019, after which such claims would not be allowable.

8. if you will make an investment in a venture capital trust (VCT) or the enterprise investment scheme (EIS), consider completing these early so that any tax repayment can be potentially be made sooner, or enabling the relief to be carried back to the previous tax year.

9. file your 2017/18 self-assessment tax return – if you think you are due a tax repayment, file your tax return as soon as possible so that you receive the refund.  If you had to make advance payments on account for 2017/18, it makes sense to file your tax return before 31 July 2018, so that the second payment on account could be potentially reduced.  Finally, filing your tax return early starts to limit the time window that HMRC have to raise an enquiry into your return – HMRC have one year from the filing date of your tax return to issue their enquiry.

10. make any charitable donations before filing your 2017/18 tax return and you can decide whether you want to carry back the donation to 2017/18 to achieve the tax relief earlier.

What’s new in 2018/19?

These are the key tax changes to watch out for in the new tax year:

• personal allowance increases to £11,850, but individuals earning over £100,000 lose their personal allowance by £1 for every £2 over this threshold, meaning an effective 60% tax rate between £100,000 and £123,700.

• basic rate band increases to £34,500, meaning someone does not pay higher rate (40%) tax until they earn income of over £46,350.

• dividend allowance reduces to £2,000, from its original level of £5,000 when it was introduced on 6 April 2016.  The reduction in the dividend allowance will cost a basic rate taxpayer £225 a year; a higher rate taxpayer £975 a year and an additional rate taxpayer £1,143 a year.

• capital gains annual exemption increases to £11,700.

• Inheritance tax residence nil rate band increases to £125,000 from £100,000.

• individual landlords will only be able to deduct 50% of their mortgage interest (reduced from 75%) as a deduction against rental income, with the remaining 50% available as a basic rate tax credit.

Please contact us if you need any advice.