Countdown to tax year end: Six tips to cut your bill

As the tax year end approaches, we round up a selection of sensible long-term strategies for investors who want to minimise the tax they pay and maximise their tax-efficient savings.

1) Max out your ISA allowance. Make as much use as you can of your £20,000 ISA allowance. As well as channelling spare cash into an ISA, if you have existing shares or other investments that are outside a tax wrapper, use any unused allowance to sell and repurchase them within your ISA (known as Bed & ISA). This will remove the risk of tax on any income or capital gains in future years, and save you having to declare profits on a tax return.

2) Top up your pension contributions.Pensions are a great way of saving, as you receive full tax relief on your contributions. Most people can get tax relief if they put up to £40,000, into their pension in a tax year (but no more than 100 % of the value of their annual earnings).

Those earning over £150,000 lose £1 of allowance for every £2 they earn above the £150,000 limit, until their allowance falls to £10,000, at which point the tapering stops.

“If you have used your allowance for this year and have earned sufficient to allow you still to pay more into your pension, you can “carry forward” any unused allowance from the previous three years [on your self assessment form],” says Charles Calkin, financial planner at James Hambro & Co.

3) Pay into your spouse’s pension. Even if you don’t have time to set it up this tax year, starting a pension for your spouse if they do not have one, or topping up if they aren’t contributing their full allowance, may be tax-efficient. “Even if your spouse does not earn an income, or earns less than £3,600 per year, you can still contribute up to £2,880 a year into a pension in their name and get the 20 % tax relief on your contributions,” says Calkin.

Andrew McCulloch, relationship manager at Seven Investment Management (7IM), says a spouse’s pension brings tax benefits down the line too: “Many clients tend to build up all the capital in one spouse’s name, rather than spreading it across both partners. Often it is the higher rate taxpayer who gets most tax relief on their contributions; however, few clients consider how they will withdraw their funds later down the line.”

If a couple’s pension income only comes from one partner, only one tax-free personal allowance of £11,500 (£11,850 in the 2018/19 tax year) is being used.

4) Use your marriage allowance. Marriage allowance lets you transfer £1,150 of your personal allowance to your husband, wife or civil partner if you have earned less than £11,500 this tax year, reducing their tax bill by up to £230 annually. Your partner’s income must be between £11,501 and £45,000 (£43,000 in Scotland) for you to be eligible. You can apply for it on the government’s website.

5) Share assets with your spouse. You and your spouse could share ownership of assets that might be liable to capital gains tax (CGT) when you sell them. The CGT allowance for an individual is £11,300 this tax year (£11,700 in 2018/19), so by owning the assets in joint names you double that to £22,600 (£23,400).

Calkin says: “For example, if one of you has been buying shares in a company Sharesave scheme, then when the scheme has matured, if the gains are substantial and you plan to sell them, give half to your spouse first. You could sell one tranche each before 5 April and another tranche just after – in the next financial year – to save having to pay CGT.”

To do this you have to wait until the scheme has matured and the shares are finally issued to you, then make a stock transfer. The administrator of the scheme may be able to help with this, or you can put them onto a platform and do the transfer from there.

6) Give money to charity. If you’re making donations to charity through Gift Aid and you pay tax above the basic rate, you can claim the difference between the 20% basic rate the charity claims and your actual rate – usually as a reduction in your income tax bill. You need to keep a record of all your gift-aided donations.

“Those who earn between £100,000 and £123,000 lose £1 of personal allowance for every £2 they earn over £100,000,” adds Calkin. “The effect is that these people pay a marginal rate of tax of 60%. Many of our clients who just fall into this bracket will give away any money they earn above £100,000 to save themselves from falling into this pernicious tax bracket”.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

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