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[01.03.2019]

Personal Tax Planning – Make the most of your Salary

There are only five weeks left of the 2018/19 financial year, and if you wish to take action to reduce your liability for tax time is running out. We are running a series of blogs on tax planning opportunities over the coming weeks which will look at both personal and business tax. This blog covers some of the ways in which you can make the most of your salary, and ensure you are fully utilizing your available tax-free allowances.

Make sure you use your Income Tax allowances

The standard basic personal allowance for 2018/19 is £11,850, for the 2019/20 tax year this will increase to £12,500. For tax tables and details on further allowances please visit our resources page.

The Personal Savings Allowance also allows a basic rate taxpayer to receive up £1,000 in bank and building society interest tax free. This is reduced to £500 for higher rate taxpayers and £0 for additional rate taxpayers. You will pay tax on any interest over your allowance at your usual rate of Income Tax.

If your level of taxable other income is no more than £16,850 you may also be able to receive up to £5,000 of interest tax free. This is known as the starting rate for savings, the more you earn from other income (e.g. wages or pension) the less your starting rate for savings will be.

Therefore, with your personal tax allowance, savings allowance and starting rate for savings, it is possible to receive employment income and interest up to a total of £17,850 without paying tax.

Don’t forget that spouses and civil partners can gift assets between each other without tax consequences. You may be able to transfer shares, money or other assets which enables both partners to make use of their allowances and may be a useful personal tax planning idea.

Plan the remuneration you receive from your business

If you have your own company you may be able to pay yourself in a mixture of salary, dividends and interest (if you have lent money to the company) to maximise your tax free earnings. The availability of these allowances depends on the income that you earn and any benefits that you may receive. We recommend that you discuss your planned remuneration package with your advisor before making any changes.

Time to make or increase your pension contributions

Private pension contributions are a tax-efficient method of building up funds for your retirement. Personal contributions cannot exceed 100% of your earnings and generally cannot exceed £40,000 per year, although additional contributions can be made in certain circumstances. If your pension pot exceeds £1.03m at the point of retirement then an additional tax charge can be incurred. The benefit of making private pension contributions is that they increase the amount of your income that is tax free. In addition higher rate tax payers may be able to claim an additional 20% tax relief.  Furthermore, if you have your own company then company contributions can be made which provides tax relief for the company.

Tax Planning Blog Series

We will be running a number of tax planning blogs in the run up to the end of the 2018/19 financial year. Next week’s blog will cover how to make the most of your savings in a tax-efficient way. We will also cover tax planning opportunities which businesses can take advantage of. Keep visiting our blog page for more information.

If you would like to discuss any of the points raised in this blog, or any other tax planning opportunities please contact us.

Ian Lowry

 

 

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