Taxes and death, yay! Here is the stuff you need to know.
1. Know what is due when: HMRC is hoping to raise an extra £1.2bn from tackling tax avoidance, evasion and non-compliance this year. So don’t expect to get away with it if you submit your return late, ‘forget’ that offshore account or don’t declare that extra income. Here are the important dates - https://www.gov.uk/self-assessment-tax-returns/deadlines - diarise your online tax return in December before that 31 Jan deadline looms.
2. Make use of your tax-free allowances – Get as much money into your Isa as you can. Draw in all those one-off stocks and shares purchases, those old investment trust saving schemes, using your annual capital gains tax allowance if you have to. In 2018 it’s £11,000 so use it. This guide from Charles Stanley Direct is useful.
3. Pensions – one of the best legal ways left to cut a tax bill. You can pay up to £40,000 a year into a pension (some small print to read first) and get 20% tax relief if you’re a basic rate taxpayer and 40% if you’re a higher rate taxpayer. And if you haven’t paid in for the previous three years you can add this all up and pay in a whopping chunk at once.
Let’s give an example. Higher rate taxpayers could stick in £32,000 and get basic rate relief (20%) of £8,000. This means that in practice you get £40,000 in your pension at a cost of just £32,000. When it comes to completing your tax return you will get another £6,730. This really is money for jam for lucky people who have extra to put away and who don’t need to get their hands on it till they’re at least 55.
Warning – if this is you, do read up about the lifetime allowance which might rain on this parade.
4. Use your partner’s allowances – if you are married you can transfer some assets over to your partner tax-free, so if you have a higher income than them, it makes sense to use their tax allowances too. This year the Dividend Tax Allowance has been reduced from £5,000 to £2,000 for example, so by sharing the income and investments between partners you double the amount that comes into the household tax free. Financial planner Adam Corcoran tweets, “….”
5. You can consider gifting smaller amounts to friends and family. This is more for older people worried about the inheritance tax bill they will leave behind. You can give away £3,000 inheritance tax free every year anyone you fancy. You can also make larger gifts, if you can prove that they make no difference to your standard of living. Here are the rules - https://www.gov.uk/inheritance-tax/gifts
6. Statement of wishes – it’s good to ensure that those who manage your pension know who it would go to if you died. Pensions sit outside your will, so a ‘statement of wishes’ needs to be made separately. Otherwise, that’s a chunky pot of money, potentially being distributed to an ex-wife, estranged children or some remote cousin. Here’s a general finance admin tip – do make sure your beneficiaries of your pension are still up-to-date and correct.
7. Make/update your will –if you live with a partner who you are not married to (you moral hazard, you), have children from different relationships or have assets of more than £325,000 it’s worth getting some advice on your will. This doesn’t necessarily have to be particularly expensive. See our guide here: https://www.boringmoney.co.uk/quick-reads/wills-some-key-facts-and-tips/
8. Set aside money for tax. Sounds obvious but can be brutal for all those self-employed. Paying tax in advance doesn’t just stop the second you might become PAYE either so find out what lies in store.
9. Financial planner Claire Walsh likes Venture Capital Trusts (VCTs). Octopus Venture Capital Trusts are her favourite. She tweets:
10. If you have young children and are just over the £50,000 threshold for child benefit, financial planner Scott Gallacher suggests “ consider making pension contributions to reduce income below £50k and avoid the high income child benefit charge” – there’s a handy calculator at www.gov.uk which will show you the numbers.