Personal Tax planning can be a complicated landscape to navigate. But with the Brexit process rumbling on and Making Tax Digital finally coming into force, there is no better time than now to put your financial plans in place for 2019/20. Here we provide a snapshot of some of the allowances available and things to consider when looking at your personal tax planning.
Savings
Reviewing how your savings are performing is always a must-do in terms of maximising tax efficiency. Whether you are protecting your wealth from tax or aiming to grow it, think about where you are putting money each year.
Personal savings allowance: Your personal savings allowance allows you to earn up to £1,000 in interest from your savings each year, without paying any tax. This is reduced to £500 for higher-rate taxpayers, and is removed altogether for additional-rate taxpayers.
ISAs: ISAs are tax-free up to a value of £20,000, whether on interest or on income from investments. Types of ISA include cash, stocks and shares, innovative finance ISAs, lifetime ISAs, and junior ISAs for under-18s. You can opt to put all your savings in one type of ISA, or you could split them across several items.
Family Tax Planning
Marriage allowance: If you earn less than your spouse or civil partner, you can transfer £1,250 of your personal allowance to them in 2019/20 by taking advantage of the marriage allowance. You will need to earn less than £11,250 to be able to do this without paying any tax, but this can reduce their tax bill and can be backdated for four years.
Inheritance and the family home: No inheritance tax is deducted from your estate if you were to die and leave your home to your spouse or civil partner in 2019/20. If you pass it on to anyone else, such as a child or grandchild, it will be subject to inheritance tax if its value is above the threshold (£325,000) at the date of death.
Income
The way you receive an income, and the rates and allowances that apply, should be at the front of your mind. How much you pay depends on where you live in the UK, with Scotland in receipt of devolved powers to set its own income tax bands on top of the personal allowance as shown in the table below.
Dividends: The annual dividend allowance remains at £2,000 for 2019/20 after reducing from £5,000 this time last year. With the new personal allowance of £12,500 added to the frozen dividend allowance, the maximum tax-free income you can receive through dividends is £14,500 in 2019/20.
Capital gains: If you own any chargeable assets that have increased in value, your profit may be liable to capital gains tax (CGT). The tax-free allowance for these gains in 2019/20 is £12,000, or £6,000 for assets held in trust.
Extra income: Some smaller amounts of income are tax-free up to annual limits. Under the Government’s rent-a-room scheme, you can continue to earn tax-free income of up to £7,500 a year from letting out a furnished room in your home.
Foreign income: How many days you spend in the UK determines your residential status for UK tax purposes, although the rules are very complex. If you are a UK resident but not domiciled here, you may need to pay UK tax on your foreign income.
Pensions
The annual pensions allowance enables you to contribute up to £40,000 in 2019/20, while you can also utilise any unused allowance from the last three years of an existing scheme. If your adjusted income exceeds £150,000 in 2019/20, your annual allowance will be reduced by £1 for every £2 that exceeds this threshold down to a limit of £10,000.
For any other questions or queries contact our Tax Team on 0161 923 0201.
