Work out how much income you will have in 2017/18
It is really important to appreciate how much income you will have in relation to the tax thresholds. For 2017/18 the tax free personal allowance is £11,500. You are charged 20% for the next £33,500 you earn and a higher rate tax charge of 40% is charged on all income earned over £45,000. Any income you earn over £150,000 will be charged at 45% tax.
What to do it you earn between £100,000 and £123,000 and are subject to an effective 60% tax charge?
Remember that the personal allowance is reduced by £1 for every £2 of income above £100,000 and anyone with income over £123,000 will not be entitled to a personal allowance. Therefore if you are in the income band £100,000 to £123,000, the effective rate of income tax you will pay is 60%.
James Murray, Practice Manager Visionary Accountants St Albans said:
‘If you are in the income band £100,000 to £123,000, the effective rate of income tax you will pay is 60%. We recommend that if anyone is in this income band they contact us for tax planning advice as 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.’
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 to reduce
The dividend nil rate band of £5,000, available for all taxpayers, is reducing to £2,000 from 6 April 2018. Thereafter, 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If you consider the highest earner in a household the child benefit is withdrawn by 1% for every £100 of income earned over £50,000 and you are not entitled to it if you earn over £60,000.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.
James Murray, Practice Manager Visionary Accountants St Albans continued:
‘It is worth remembering that married couples and civil partners also have allowances that can be used, and children also have tax free allowances. If you think that you may be affected by any of these financial circumstances or want tax planning advice before April 5th please contact us on 01727 730550 as we offer a free initial consultation meeting to discuss your tax planning requirements.’