There are a number of different types of ISAs and they all grow tax-free and are not taxed when withdrawn.
Personal income between £100,001 and £123,700 is taxed at an effective rate of 60%; this is due to the loss of the personal allowance. Personal income over £150,000 is taxed at 45%.
Individuals may be able to reduce the income being taxed at these high rates of tax by taking advantage of the following:
Where personal income exceeds £123,700 after deductions for pension contributions and Gift Aid, individuals that manage their own companies may wish to consider accelerating income into the current tax year – up to the £150,000 additional rate threshold – to maximise use of the higher rate band.
All UK residents are able to contribute up to £3,600 gross, £2,880 net per year regardless of age or income.
However, the annual pension contribution capacity in 2018-19 is the lower of your relevant earnings and the annual allowance of £40,000 gross, equating to a £32,000 net payment.
If your adjusted income* is over £150,000, then the annual allowance is tapered away by £1 for every £2 of income. There is a minimum level of £10,000 gross, £8,000 net for those with adjusted income in excess of £210,000.
It is important to review your pension contributions to see if there is scope to make additional contributions and utilise unused capacity brought forward from the three previous years (read our alert Pension contributions: act now to maximise tax efficiency) .
Individuals have their own investment entitlement and income tax relief is available which will reduce your tax liability.
If you have capacity in the 2017-18 tax year the investments in both EIS and SEIS can be carried back and income tax relief obtained in the earlier year.
If the EIS or SEIS investment is held for more than three years any capital gains generated are exempt.
The personal savings allowance of £1,000 of tax-free interest for basic rate taxpayers, and £500 for higher rate taxpayers.
This is a saving of £200 per person
There is no allowance for those paying tax at 45%. The first £2,000 of dividend income is tax-free. These allowances encourage families to structure their savings to utilise these allowances where possible.
Two separate £1,000 tax-free allowances are available; one for trading and miscellaneous income, and another for income from property. These allowances are designed to exempt modest amounts of income for example from sales on eBay, Amazon or Airbnb.
Where an individual rents out part of their only or main home, up to £7,500 of income from the letting will be tax-free due to availability of rent-a-room relief.
Where one spouse is a basic rate taxpayer, and the other has income below the personal allowance, the latter can transfer 10% of their personal allowance to their spouse resulting in tax relief of up to £237 in the current tax year.
Tax relief can be claimed on certain expenditure incurred in connection with your employment. This includes professional subscriptions, and business miles travelled in your own vehicle.
Employees should also review their tax codes to ensure that the correct allowances and deductions are included. Where excessive deductions have been included in the current tax year, a tax repayment may be due following the 5 April 2019 year end.
The majority of individuals have an annual CGT allowance of £11,700. Therefore capital gains on investments up to this amount are tax-free before the 6 April 2019.
One way of utilising the allowance is to sell and then buyback stocks and shares. This provides an opportunity to increase the base cost for future sales. The repurchase will need to be delayed for more than 30 days or made by your spouse, civil partner, or ISA to benefit from this.
Assets with a loss can also be sold to reduce capital gains in the same tax year or they can be carried forward and set against future capital gains.
For individuals that hold assets qualifying for Entrepreneurs’ Relief, disposals made after 5 April 2019 will have to meet the qualifying conditions during the two years prior to disposal. In the current tax year, the conditions only need to be met for one year prior to the date of disposal.
An individual can make an annual gift of £3,000 IHT free. This provides parents (and grandparents) with an opportunity to make tax-efficient gifts.
Individuals can also make as many small gifts of £250 per person as they like per tax year. This provides the opportunity of gifting £250 to each child or grandchild each and every tax year IHT free.
Regular gifts from disposable income may also be made IHT free. Great care however needs to be taken to ensure that the gifts are habitual in nature and are out of income which is in excess of regular expenditure. This is a complex area and advice should be sought.
Additional points to consider
For more information on how you can make the most of you tax planning opportunities please speak to your usual Crowe contact.
*Generally, adjusted income is your total taxable income plus employer pension contributions.