Final Curtain About to Fall on 2017/18 – Take the time to take charge of your tax affairs
And now, the end of 2017/18 is near, and so dear friends, we face the final UK tax curtain…….and Derek MacKay has said it clear,….. stated his case,… and …we will do it the Scottish way! I do wonder if... Read more
Blog15th Mar 2018
And now, the end of 2017/18 is near, and so dear friends, we face the final UK tax curtain…….and Derek MacKay has said it clear,….. stated his case,… and …we will do it the Scottish way!
I do wonder if Derek MacKay regularly sang Frank Sinatra’s ‘My Way’ Lyrics when he sat down to rewrite Tax history for the Scottish population, certainly he has stated his case and from 6 April 2018, we are definitely doing it his way.
So what can you do before 5 April, that will mean you try to do it your in own way?, hopefully making sure that you do not lose out on any allowances or reliefs, and ‘bank’ those available to you going into the new tax year?
Last month, Derek Mitchell outlined full details of what the new tax year will bring, and so I just intend to highlight perhaps a few of the more common things to think about.
Before 5 April 2018
- Employed or Receiving a Pension – it may sound an obvious thing to do, but given the tax rate changes, check the 2018/19 PAYE Code that HMRC has decided to allocate to each source of income you receive. They have a particularly chequered history of not getting this right, and this can lead to unexpected and significant underpayments of tax.The new Scottish tax rates and bands require HMRC to update everyone’s codes between now and April to ensure that correct tax is paid. This is a massive undertaking, and will inevitably lead to mistakes, particularly where an individual has a number of different sources of employment or pension income. Making sure the code is right even before the tax year starts, should mean no nasty surprises later on.
- Pensions – It’s so important you maximise the amounts you can contribute, and for those of you lucky enough to have income over £150,000, the chances are you are now limited to £10,000 instead of £40,000 pa, so before another year of unused relief is lost, take professional advice and pay what you can now..but be quick as these calculations can take some time to do.
- ISA’s – take advantage of that £20,000 investment now.
- Use it or lose it – £11,300 Capital Gains Tax Allowance – think about shares or assets with gains that you may want to sell to use up this allowance. If you are married, transfer some shares to your partner so each of you take advantage of this allowance.
- Own shares in your own company ? – then make sure you pay yourself at least £5,000 dividend to use up the dividend allowance (about to be reduced to £2,000)
- Want to help your children, or grandchildren and give them a quick cash boost? – everyone can gift up to £3,000 cash pa without this affecting their future inheritance tax position, and pretty certain an unexpected cash gift of this amount would be well received by anyone in your family. This £3,000 limit can be carried forward one year, so if you haven’t gifted anything in 2016/17, you can gift £6,000 now and another £3,000 after 6 April.
After 6 April 2018
Employment, self employment, pension and rental income will all be subject to the new higher Scottish tax rates, so a few things to think about:
- If you own shares in your own company, think about paying dividend income rather than a higher salary. Dividends are free from National Insurance costs, plus subject to UK dividend tax rates.
- If you have a number of investment properties and need the rental income to live on, now is definitely the time to consider incorporation, as extracting this rental income from the new company using dividends will save you tax, plus the restrictions on tax relief relative to loan interest would not apply to properties held in a company.
- If you are married, make sure that any investments are arranged between you and partner in the most tax efficient way, to ensure the Personal savings and Dividend allowances are fully maximised.
- Watch out for the ‘stealth’ pension tax charge. If your income is likely to exceed £150,000 (including pension contributions) then if you don’t carefully manage the amount of pension contributions going into any scheme, you could face a tax charge at the end of the year.
The tax landscape for many Scottish Tax Residents is now more complicated than ever before. Employing a professional advisor who fully understands the tax implications of day to day decisions relating to your business or personal investments will allow you to make informed choices, which is crucial given the impact of increased tax rates on future income receipts.
We are here to help and support you throughout these changes. If you would like more information please contact Lynn Gracie (firstname.lastname@example.org) or your usual AAB contact.