Are you making best use of the reliefs and allowances for the tax year ahead?

20 April 2018

As we start another tax year, it is worth reviewing the tax reliefs and allowances you are entitled to, which have been refreshed and, in some cases, changed. There are now many reliefs and allowances for different types of income but, depending on what type of income is received, a liability to tax could now arise due to changes in the annual tax allowances for particular income categories.

What’s changed?

The following table gives an overview of the income tax reliefs and allowances for 2018/19, compared to the previous year.


2017/18 £ 2018/19 £
Personal allowance 11,500 (tapered away for income between £100,000 and £123,000)  11,850 (tapered away for income between £100,000 and £123,700)

Higher rate threshold
- taxable income


33,500

34,500 
Dividend allowance 5,000  2,000
Dividend tax rates
- Basic rate taxpayers 7.5% 7.5%
- Higher rate taxpayers
32.5%
32.5%
- Additional rate taxpayers
38.1%
38.1%
Rent-a-room income allowance 7.500  7,500
Savings income allowance
- Basic rate taxpayers
£1,000
£1,000
- Higher rate taxpayers
£500
£500
- Additional rate taxpayers
£nil
£nil 
Trading allowance 1,000  1,000
Property allowance 1,000  1,000

The main change for 2018/19 is the reduction in the dividend allowance from £5,000 to £2,000, potentially pushing some individuals with dividend income into a tax liability position which they previously did not have. This means that some will need to notify HMRC and file a tax return for the year ended 5 April 2019 where none was required in 2017/18.

However, it is also useful to consider whether other tax reliefs and allowances, many only introduced in April 2017, can be utilised, such as the property and trading income allowances.

Up-front planning

More generally, at the start of the tax year, individuals should look at their income and consider:

whether income from their investments could be shared more effectively between them and their spouse or civil partner; and , 
if they are making the best overall use of their tax reliefs and allowances - for example, where dividend income exceeds the dividend allowance but no interest income is received, individuals should work with their investment adviser to give consideration to reducing dividend income and increasing interest income.

For higher amounts of income and more complex investment portfolios, consideration should be given to other arrangements for ‘wrapping’ the portfolio to protect wealth for the longer term and enable improved investment growth.

While the end of the tax year is traditionally a time to ensure reliefs and allowances are fully utilised, it can often be too late to make any meaningful changes to income sources etc. A review of your financial affairs early in the tax year, therefore, can often allow more time for a considered reorganisation of your affairs, which may help to improve your post tax position.

For more information please get in touch with Gary Heynes, or your usual RSM contact.