10 tax year-end money moves for investors

Many tax-efficient allowances are tax-year specific, so investors must use them or lose them, says Ben Yearsley.

With the end of the tax year approaching, many people will want to consider getting their tax and investment affairs in order sooner rather than later. Here is a handy guide to things that they should be considering. Many tax-efficient allowances are tax-year specific, meaning that if one isn’t used, it’s lost. 

1) Charitable donations

Charitable donations, as well as doing good, also attract tax relief via Gift Aid. If you are considering being generous, consider which tax year you make donations in and remember to tick the Gift Aid box as your chosen charity benefits. If you are a higher rate (or additional rate) taxpayer you can also reclaim some tax.

2) Use CGT allowance

This is one of the most underused tax allowances, but up to £12,000 is available to everyone, tax free every tax year. Be clever with this allowance: if it gets near to the end of the tax year, and the allowance hasn’t been used, then why not look at your portfolio and see if there are alternatives to those investments pregnant with gains. Many use this allowance to generate a tax-free income.

3) Use your Isa allowance

This is still one of the best allowances. £20,000 is a generous allowance that can give tax-free growth and income. On a typical dividend yield of 3.5%, £700 of income could be generated tax free each tax year.

4) Contribute to a pension, where possible

Although successive chancellors are doing their best to kill off pensions, using your allowance is usually a good thing. Up-front tax relief, tax-free growth and potentially inheritance tax free status are three benefits – the downside is taxable income when the pension is taken and having your capital tied up until at least the age of 55. Non-earners also have an allowance of £2,880 each tax year, which is topped up by £720 of tax relief. 

5) Make use of a spouse’s allowance

Many high earners have non-earning spouses. If that is the case, organise your affairs tax efficiently so that a spouse’s valuable tax-free allowances aren’t lost. Their personal allowance of £12,500 and capital gains tax allowance of £12,000 could be utilised by transferring assets to their name. 

6) Do Jisa and pension contributions for children

Children also get their own long-term annual investment allowances. Make use of the Junior ISA allowance of £4,368 and the pension allowance of £2,880 before 5 April.

7) Don’t forget your tax-free dividend allowance

Everyone gets a £2,000 tax-free dividend allowance; it might not be as high as it used to be, but it’s still a valuable allowance. Especially useful for small business owners who can time when they take dividends.

8) Consider ways to reduce income tax bill by investing in VCTs, EIS, SEIS

For high earners who have already utilised their Isa and pension allowances, more specialised higher-risk investments are available, such as VCT that can help reduce income tax bills, capital gains tax bills, produce tax-free growth and income. A total of £1.3 million could be invested in these three investments this tax year offering a tax rebate of £410,000 (for those lucky enough to earn that much!). You can also use Enterprise Investment Scheme/Seed Enterprise Investment Scheme (EIS/SEIS) to reclaim tax from the 2018-19 tax year.

9) Transferable married couple allowance

The Marriage Allowance lets you transfer £1,250 of your personal allowance or your husband, wife or civil partner. It only works when one is a non-taxpayer - the receiving partner needs to be a basic rate taxpayer. It could save £250 this tax year. You can also backdate this allowance for three tax years. However, be aware that the rules are slightly different in Scotland.

10) Use annual gift allowances

Every individual can legitimately reduce the value of their estate each year by gifting assets within specified limits. For those with larger estates, this could be particularly useful. 

Ben Yearsley is director, Shore Financial Planning.

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