Although the new 2019/20 tax year has just begun it is never too early to get tax advice.
The Visionary Accountants accountancy team based in St Albans always recommends our clients consider tax planning to take advantage of all available entitlements and allowances. Call us now on 01727 730550 for a free initial tax planning consultation.
Estimate how much income you will earn in 2019/20
It is really important to appreciate how much income you will have in relation to the tax thresholds. For 2019/20 the tax free personal allowance has increased to £12,500. You are charged 20% for the next £37,500 you earn and a higher rate tax charge of 40% is charged on all income earned over £50,000. Any income you earn over £150,000 will be charged at 45% tax. From 2021 to 2022 onwards, the Personal Allowance and basic rate limit will be indexed with the Consumer Price Index (CPI).
What to do it you earn between £100,000 and £125,000 and are subject to an effective 60% tax charge?
If you earn under £100,000 per year, you will normally be entitled to the annual tax-free personal allowance of £12,500. However, 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 £125,000 or more.
‘If you are in the income band £100,000 to £125,000, the effective rate of income tax you will pay is 60%. If you think that you could be in this income band in the 2019/20 tax year we recommend you contact us as we offer tax planning advice. There are actions you can take to reduce the tax you will pay during the year. These include making a contribution to your pension scheme. Making a pension contribution enables you to benefit from 40% tax relief and you should then be entitled to your personal allowance of £12,500. Alternatively you could take part of your salary in employee benefits.’
Consider your personal savings allowance
Basic rate taxpayers should remember that they 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. Review these entitlements and your income so it doesn’t go above the thresholds if this allowance is reduced. If it does you could consider making a gift aid donation or make a pension contribution.
Dividend Nil Rate band - £2,000
The dividend nil rate band of £2,000, is available for all taxpayers. Any dividends falling within the basic rate band are taxed at 7.5%. Dividends that fall within the higher rate band are taxed at 32.5%, and dividends that fall into the additional rate band are taxed at 38.1%.
Can you claim for Child Benefit?
If you consider the highest earner in a household the child benefit is withdrawn by 1% for every £100 of income earned over £50,000 and you are not entitled to it if you earn over £60,000. The rate of income tax you pay between £50,000 and £60,000 will vary depending on the number of eligible children and the higher the effective tax rate. If you fall in this band you could consider making pension contributions or gift aid. If you are eligible to claim child benefit you will receive £20.70 each week and £13.70 for each additional child.
Remember to use your pension allowance
Remember to use your pension allowance in the new tax year. If you are a UK taxpayer, 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 in the 2019/20 tax year. However, it may be worth contacting a financial adviser to discuss your individual financial situation.
Invest in an ISA for tax free saving
For the 2019/20 tax year you can invest up to £20,000 in an individual ISA before April 5th 2020 and remember ISAs are not subject to capital gains tax or income tax. You can either open a stocks and shares ISA or a cash ISA. This means a couple can now invest £40,000 in tax efficient investments before April 5th 2020.
‘Although the new tax year has only just started it is never too early to start tax planning for yourself and your family. Remember that married couples, civil partners and children all have allowances that can be used too. The earlier you start tax planning the sooner you can take advantage of your entitlements or act to reduce the tax you pay. This is especially important if you think your earnings may put you in the 60% tax bracket this tax year. If you want tax planning advice call a member of our Visionary Accountants team on 01727 730550 or complete our booking consultation form. Our accountants offer a free initial tax planning consultation and we will review your personal financial situation to make sure you use all the allowances available to you. We work with clients across Hertfordshire and in London and specialise in providing tax advice.’