Utilising Allowances

Question.

 

I want to check if I have used my tax allowances effectively in 2017/18. What should I look at?

 

Answer.

 

A good starting point is to ensure your employer has used the correct tax code in their payroll. If your income is below £100,000 your personal allowance should be £11,500, therefore your tax code will be 1150L (£11,850 and 1185L after 6 April 2018). If you have savings income the personal savings allowance is £1,000 per basic rate tax payer and £500 for a 40% tax payer. If you are also in receipt of dividends, the dividend allowance applies 0% tax on up to £5K (reducing to £2k from 6 April 2018). It is therefore possible to have received a total of £6,500 of investment income tax free in the tax year ending 5 April 2018.

 

There is also scope for couples (married or in a civil partnership) to transfer up to £1,150 of unused personal allowance to their spouse/partner if they are a basic rate tax payer. They may also equalise or redistribute income by means of a declaration of trust to set out the shares of beneficial ownership. To ensure both persons personal income tax allowances and or investment limits are utilised in full and in a tax-efficient way. There is still time to do this before the 5 April 2018 and there is no tax on transfers between married couples or civil partners.

 

If you have money to invest, the government is expanding is the Enterprise Investment Scheme. From 6 April 2018 the investment limit per individual will rise from £1m to £2m but caution should be exercised to ensure the investment company is a “knowledge intensive” company and that all other conditions are met in order for tax relief to be granted.

 

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

 

Get in touch with Seamus McElvanna via email s.mcelvanna@pkffpm.com