With the Self Assessment tax deadline looming, and the end of the financial year on the horizon, it’s time to consider your tax liabilities. If you’re running a successful business, you should already be prepared for your tax bill. However, tax can be a very complex matter, especially if you own a portfolio of businesses or properties. In this article, we flag up some key areas to consider, as well as some potential tax breaks to help you plan for the future.
What’s new in tax this year?
Firstly, the Autumn statement announced a few changes, which will begin from 6 April 2018:
The Income Tax rates will change as follows:
Tax-free Personal Allowance – has increased from £11,500 to £11,850, so no Income Tax is liable on income up to this amount.
- Basic rate – 20% tax band has increased to £46,350 (previously £45,000).
- Higher rate – 40% tax band is now set at £46,350 – £150,000.
- Additional rate – 45% tax band; no change, this is still set at £150,001.
Did you know that your Personal Allowance will reduce by £1 for every £2 you earn over £100,000? For example, if you reach £123,700 in earnings, you won’t receive the personal tax-free allowance at all and you will have to pay income tax on every pound you earn.
Remember that Individual Savings Accounts (ISAs) are a good way of saving without paying tax on the income or gains, whether that’s in a Cash ISA or a Stocks & Shares ISA. The maximum allowance for 2017/18 is £20,000, and you need to either save or invest into your ISA no later than 5 April 2018 – otherwise, your allowance will be lost. The allowance is the same for the next tax year too (although there is a small increase for Junior ISAs from £4,128 to £4,260). If you’re interested in finding out how you could benefit from an ISA, please get in touch.
What about any tax breaks?
Many people are unaware of the Married Couple’s Allowance, which you can claim if your partner earns less than the personal allowance. If that doesn’t apply to you, perhaps you have a son or daughter who could benefit from this? The Married Couple’s Allowance is a way to help couples (including civil partnerships), where one person is a low earner and the unused tax-free allowance can be passed onto their spouse. Check to find out whether you are eligible or visit the Which? guide to Married Couple’s Allowance for more information.
Capital Gains Tax
In simple terms, Capital Gains Tax is taxed on any profit you make when you sell (or give away as a gift) as asset that’s increased in value. Therefore, the ‘gain’ is taxed, not the actual amount of money received. The annual exemption for Capital Gains Tax 2017/18 is £11,300 – the general rule here is use it or lose it! If you’re a higher-rate or additional-rate tax payer, then you would be liable to pay 28% on gains from residential property and 20% from gains on other assets or investments. If you’re a basic rate tax payer that comes down to 18% on residential property gains and 10% on gains from other investments.
There are many ways you can invest to gain tax-efficient savings. Always seek professional advice before you make any big changes to your savings and investment strategy.
Let’s talk business…
If you’re a business owner, do you know whether you are eligible for Entrepreneurs’ Relief? If you’re looking to sell or dispose of all or any part of your business, you could pay less Capital Gains Tax at a reduced rate of 10%. But there is qualifying criteria and you need to plan to take advantage of it. For guidance, please see the Gov.uk guide to Entrepreneurs’ Relief.
Changes to company dividends
From 6 April 2018, there will be some big changes to company dividends. If you’re a company owner and, in addition to a salary, you pay yourself in the form of dividends, you will see your tax-free allowance reduce from £5,000 to £2,000. Dividends over that rate are taxed. If you’re an investor, please be aware this also applies to portfolios of shares held outside of ISAs or pensions. The reason for this change is because the government is looking to reduce the incentive for people to use businesses purely for tax reasons.
Some investors are trying to off-set the changes to dividends by ensuring they have saved up to the full ISA allowance during 2017/8 and then transferring a further £20,000 into their ISA on 6 April 2018. However, we strongly advise speaking to one of our financial planners for advice on suitable savings strategies.
The Corporation Tax rate will remain at 19% in the next tax year, but the government has planned to reduce this to 17% from April 2020. This is mainly due to the uncertainty over Brexit, and the need to support businesses with a stable corporation tax rate to encourage inward investment. However, due to the government’s increased focus on research and development (R&D) to stimulate productivity (see our previous blog, Productivity and Investments), there is tax relief available in the form of the R&D expenditure credit, which will increase from 11% to 12%. It’s worth talking to your accountant to see whether your business qualifies for this type of tax relief.
If you would like help with tax planning or a financial review, please get in touch to speak to one of our team. Our financial planners will carry out a full review of your finances, assets, and any business interests to help you create a sound financial plan.