How much income will you have in 2018/19?
It is really important to know how much income you will have in relation to the tax thresholds. For 2018/19 the tax free personal allowance is £11,850. You are charged 20% on earnings up to £46,350 and a higher rate tax charge of 40% is charged on all income earned over £46,351 up to £150,000. Any income you earn over £150,000 will be charged at 45% tax.
What to do it you earn between £100,000 and £123,700 and are subject to an effective 60% tax charge?
If you earn under £100,000 per year, you’ll usually benefit from an annual tax-free personal allowance of £11,850. But once your income goes above £100,000, the tax-free personal allowance tapers away at a rate of £1 for every extra £2 you earn. This means your personal allowance is zero if you earn £123,700 or more.
Consider your personal savings allowance
Basic rate taxpayers are entitled to £1,000 of tax free savings on their savings income and higher rate taxpayers can claim £500, but additional taxpayers do not qualify for this tax relief. If your income goes above these thresholds you could consider making a gift aid donation or make a pension contribution.
Dividend Nil Rate band
The dividend nil rate band available for all taxpayers, reduced to £2,000 from 6 April 2018. Thereafter, any dividends falling within the basic rate band are taxed at 7.5% up to £34,500. Dividends that fall within the higher rate band are taxed at 32.5% on earnings up to £150,000, and dividends that fall into the additional rate band are taxed at 38.1% on earnings above £150,000.
Remember to use your pension allowance
If you are a UK taxpayer, in the tax year 2018-19 the standard rule is that you'll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. However, it may be worth contacting a financial adviser to discuss your individual circumstances.
Invest in an ISA for tax free saving
You can invest the whole of your individual ISA allowance of £20,000 in a Stocks & Shares ISA before April 6th 2019, or up to £20,000 in a cash ISA, with any balance invested in a Stocks and Shares ISA. A couple can now invest £40,000 in tax efficient investments before April 6th 2019. Remember ISAs are not subject to capital gains tax or income tax.
‘If you want tax planning advice before April 5th please contact us on 01727 730550. We offer a free initial consultation meeting to discuss your tax planning requirements. If you are in the income band £100,000 to £123,700, the effective rate of income tax you will pay is 60%. Remember there are things you can do to reduce the tax you pay. For example you could make a contribution to your pension and benefit from the 40% tax relief on the contribution and by doing this you could regain your personal allowance. Or you could take part of your salary in employee benefits.’