The Spring Statement on 13 March 2018 contained no new announcements affecting tax or pensions. This was as expected as the Chancellor had previously confirmed that major tax and spending changes will now be made only once a year at the Budget in the Autumn.
This means that from a tax point of view, the most important thing for doctors to be aware of at present is the approaching end of the tax year on 5 April.
5 April is the deadline for making ISA and pension contributions using 2017/18 allowances. Other annual exemptions that expire on 5 April include those for Capital Gains Tax and Inheritance Tax.
The ISA allowance is currently £20,000. Doctors can pay up to £20,000 into an ISA by 5 April 2018 and all future income and gains on the money will be tax-free. It is then possible to pay in a further £20,000 when the new tax year starts on 6 April 2018.
By using the ISA allowances for both 2017/18 and 2018/19, a couple can shelter £80,000 in ISAs in the next few weeks. ISAs can be funded using cash or existing investments, which would need to be sold and repurchased within the ISA.
Note any ISA contributions made since 6 April 2017 need to be deducted from the £20,000 allowance to confirm how much allowance is remaining. For instance a doctor who paid £4,000 into an ISA on 1 June 2017 has £16,000 allowance remaining to use by 5 April 2018.
The standard Annual Allowance for pension contributions is £40,000. Any unused allowance from the past three years can also be carried forward. However, it should be noted that tax relief can only be claimed on personal contributions up to the higher of 100% of earnings or £3,600. Personal, employer and other third party pension contributions all count towards the allowance, as does pension accrual in the NHS Pension Scheme.
Exceptions to the standard Annual Allowance are:
- High earners - earning £150,000+ - are subject to a Tapered Annual Allowance whereby the Annual Allowance is reduced by £1 for every £2 income over the £150,000 threshold, down to a minimum of £10,000 for those earning £210,000+.
- Doctors who have already taken income from a flexible pension such as a modern drawdown arrangement are subject instead to the Money Purchase Annual Allowance of £4,000 and no carry forward is available.
Capital Gains Tax
Capital gains of up to £11,300 can be realised this tax year before a Capital Gains Tax charge applies.
There is a £3,000 annual exemption from Inheritance Tax. This can be carried forward for one year. This means that, if unused last year, it is possible to make Inheritance Tax-free gifts of up to £6,000 before 5 April 2018.
Please note the value of tax benefits depends on individual circumstances and tax rules are subject to change by the government. This article does not constitute personalised financial advice.
For personal advice on using tax allowances and exemptions please contact Richard Higgs CFP FPFS on 0117 966 5699 or firstname.lastname@example.org.