The new tax year starts on 6 April. We’re not expecting you to reach for the party banners – but it's a good time to ensure you're on the right side of tax efficiency.
1. Use up your ISA allowance
Time is running out to use up year’s ISA allowance of £15,240. While you will get a fresh new allowance of £20,000 from 6 April, you won’t be able to carry this one over into the new tax year.
You can split your tax-free ISA allowance between a cash and stocks and shares ISA in any proportion you like.
But, there are a growing number of property-related ISA options to consider, too.
Help to Buy ISA: If you’re saving for your first home, a more useful kind of cash ISA (you can only save into one in each tax year) could be a Help to Buy ISA.
You can stash up to £200 a month into one of these accounts (in addition to an opening payment of £1,000) and the Government will offer a 25% bonus – up to a maximum of £3,000 – to put towards your first home.
Property ISAs: A property ISA, such as the one offered by Zoopla partner, Bricklane.com, is another option. This counts as a stocks and shares ISA so you can pay into a Help to Buy ISA (or any other cash ISA) at the same time.
It works by pooling your cash with that of other investors into a special (REIT) fund. The fund is then used to purchase buy-to-let homes across UK cities.
Your investment tracks any changes in the value of these homes – and receives rental income on top. Both your income and gains will be paid to you free of tax.
You can open Bricklane.com’s property ISA with just £100 and it’s also possible to transfer in any existing ISA balance/s you have from previous years. The tax-free perk is capped to the standard ISA allowance.
2. Get to grips with your Personal Allowance
If you’re a landlord and receive rent from an investment property, it’s classed as income. And that means it’s liable to Income Tax.
However, everyone can earn a certain amount – whether it’s in rental profits or from a job – before Income Tax is payable. This is known as your Personal Allowance.
For the current tax year (ending 5 April) your Personal Allowance stands at £11,000. Next tax year (starting 6 April), it will rise to £11,500. It’s important to use your Personal Allowance each tax year as you can’t carry it over to the next one.
3. Take advantage of the Marriage Allowance
If you own your investment home jointly with your spouse or civil partner, the profits from it will be split in equal shares for tax purposes (unless your ownership shares are different and you’ve told HMRC to split them in relative proportions). So, you can each use your Personal Allowance.
However, if you’re a non-taxpayer (ie, you have an annual income of £11,000 or less) and your partner is a basic rate taxpayer, you can transfer £1,100 of your Personal Allowance over to them under the Marriage Allowance. Next tax year, this amount rises to £1,150.
You can also claim £1,060 from last tax year (ending April 2016) if you were eligible for the Marriage Allowance and didn’t get around to it.
Taking advantage of this tax perk will mean your partner will be able to earn more in rental profits before paying tax.
4. Offset all the expenses you can
If you’re a landlord, you’ll probably be aware that the screws have been turning on the tax reliefs available to you.
Last April, wear and tear relief that had been available at 10% was scrapped. Now landlords renting furnished properties can only claim for the actual cost of damage or repairs.
And from this April, relief on buy-to-let mortgage interest payments will also be capped – this time at the basic rate of 20%, so higher rate (40%) and additional rate (45%) taxpayers stand to lose the most.
There are still plenty of allowable expenses you can claim though – including general maintenance and repairs to the property, service charges, lettings agent fees and insurance – so make the most of them before the start of the new tax year.
5. Make the most of what you can gift
The slice of your estate’s value that’s worth over £325,000 when you die may be subject to Inheritance Tax (IHT), which is payable at 40%. But any unused allowance is transferable to your spouse when the other of you dies, which can increase it up to £650,000.
However, you can drip feed your wealth to your dependents or loved ones by giving gifts of up to £3,000 in total IHT-free each tax year. If this is your intention, you have four weeks left to make this year’s transfer.
For other ways of mitigating IHT, or avoiding it altogether, visit Gov.uk.
It's also worth knowing that IHT rules are about to change! From 6 April 2017, if you leave the family home to a direct descendant (a child or grandchild for example), you'll have an additional £100,000 added to this £325,000 nil-rate band.
This additional allowance will increase to £175,000 per person over the next four years, and doubles up for married couples/civil partners.
As well as simplifying estate planning arrangements, this change could result in immediate tax savings of up to £80,000, according to independent financial advisers, Hargreaves Lansdown.