We’re into tax year end and many people are busy getting all those things done as 5 April looms, whether that be finalising pension contributions, using up allowances or bed and breakfasting those capital gains.
But should we be lifting our noses from the grindstone to take a look into 2019 and beyond?
With a clear view of next tax year there are things we might want to do or refrain from doing, prior to tax year end, with next year in mind.
Which clients are retiring in 2019?
Those retiring, especially early in the tax year, will likely see their ability to pay into a pension seriously curtailed with a maximum contribution of £3,600 gross. It might be an idea to use any spare capital to maximise pension contributions by 5th April.
Bob is a higher rate tax payer on £66,350, he will be a basic rate tax payer in retirement. If he pays £20,000 gross into his pension this will cost him £12,000 after tax relief. £1,000 a year from your £12,000 capital lasts 12 years. £1,176 (£1,000) net out your £20,000 pension lasts 17!
Wouldn’t it be nice to be a basic rate taxpayer in your final year of work, especially when it makes your non work years wealthier? Or how about being a non-taxpayer in your final year of work by paying 100% of your relevant earnings? Pensions usually last longer than capital: tax relief and tax free cash see to that.
Who’ll be unhappy with the £50,000 higher rate threshold?
The budget confirmed the higher rate threshold was being accelerated to £50,000 next year. Those with salaries between this amount and £46,350, the current threshold, may not get higher rate tax relief on next year’s contributions. Should we bring some of next year’s contributions into this tax year?
On the flip side with a larger than expected basic rate band next year, should some investment disposals, especially bond gains be delayed? After all, where more of a “slice” is in basic rate tax the greater the top slicing relief that will be given.
Anyone at the higher end of the wealth spectrum could be looking into a 2019 where they may get their annual allowance tapered. Especially those getting promoted in DB schemes as a seemingly reasonable pay rise can see a spike in annual allowance and hence adjusted income levels. The annual allowance is tapered to £10,000 where both adjusted income and threshold income are over £150,000 and £110,000 respectively. Reconsider whether additional pension funding is wise this year as you might need the carry forward next year.
For more on tapered annual allowance please visit.
Is investment income a good idea next year?
Of course, investment income is good isn’t it? We may not have had any tax to pay on this years investment income due to the dividend allowance (£2,000) and personal savings allowance (£1,000 / £500). But as it’s still part of your adjusted net income, albeit taxed at 0%, it may have caused other tax issues like loss of child benefit, personal allowance or annual allowance. Higher amounts may have suffered higher rate taxation, which just dampens overall return where growth is the goal. This income can still be received but we can turn it off for tax purposes as we go into the new tax year. Simply assign it to a spouse with a better tax position or place them in a wrapper, like a bond, ISA or a pension for the (tax) years ahead.
For more info on taxation of investment income - https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/rates-tax/
Anyone’s assets going over £2million?
Planning may not be high on their agendas but it’s not too late to save some IHT. Clients with death estates over £2million will not benefit from a full Residence Nil Rate Band (RNRB). Even something as late as a death bed gift, reducing the estate, can save IHT. Roy is a widower with two residence and main nil rate bands. As he has assets of £2,300,000 he will lose one of his RNRBs. By gifting away £300,000 he gets to use two.
Plus gifts < 7years
Tax @ 40%
The gift has saved 20% IHT. For those with life expectancies over 7 years, would planning to avoid 60% IHT be a good idea?
It can pay to look at what tomorrow looks like in case you need or want to plan for tomorrow today.