The start of a new tax year is a reminder that it is never too early to plan your affairs tax efficiently for the coming year.
Alongside the refreshed tax allowances, to include personal allowances, CGT annual exemptions and the usual gift exemptions for IHT, 6 April will see the tax benefits of individual savings accounts (ISAs) continue to increase. With an annual ISA allowance of £20,000 comes the introduction of the new lifetime ISA (or LISA) aimed at those saving for their first home or looking to use ISAs as part of their retirement planning, where a maximum of £4,000 can be invested to attract a potential government bonus of 25 per cent.
We also know that this year is likely to be the last one where individuals can enjoy the ‘new’ dividend allowance and receive £5,000 of dividends tax free. This is intended to reduce to £2,000 from 6 April 2018.
In addition, there is the introduction of new reliefs. Property owners and sole traders will each enjoy a new allowance of £1,000. Gross rents or turnover for traders under this threshold will not be subject to tax. If rents and turnover exceed this allowance a deduction of £1,000 can be applied to arrive at taxable profits instead of having to calculate and claim actual expenditure for the year.
It is not all good news though. Property owners claiming tax relief on mortgage interest will see a restriction on the relief available. 6 April marks the start of the four year transition period which reduces the tax relief available from the higher and additional rates of tax to just basic rate tax relief for all.
From an IHT perspective there are changes too. The first tranche of the much anticipated residence nil rate band (RNRB) is available from 6 April 2017, the first step towards a married couple having a potential maximum nil rate band for IHT purposes of £1m by April 2020.
Wills should be reviewed to make sure they accommodate this new allowance. With complexities around the value of an individual’s estate, how and by whom the property is inherited and whether the individual has downsized during their lifetime, it should not be taken for granted that this relief will automatically be available.
Last but not least there are the significant changes for the taxation of non UK domiciled individuals. These are far too complex to go into detail here but those affected should take advice if they have not done so already.
Making plans now can help maximise reliefs and allowances, aid cash flow through the understanding of what tax is payable and when, and avoid a last minute dash to the finish line next year.
For more information please get in touch with Joan Foster, or your usual RSM contact.