When your total income reaches certain thresholds, it tips any extra income into a tax band where a higher rate of tax is charged. This can also mean you lose part or all of your savings allowance, child benefit, personal allowance, or pension annual allowance.
The thresholds quoted below don’t apply to taxpayers who live in Scotland, as the income tax rates in Scotland are different to those that apply in the rest of the UK (see above). However, the principle is the same. You may be able to save tax by moving income from 2017/18 to 2018/19, or by making certain payments in 2017/18 rather than in 2018/19.
Say you are a 20% taxpayer in 2017/18, but expect that a bonus due in March 2018 will tip you into the 40% band (over £45,000). If you ask your employer to delay paying the bonus until after 5 April 2018, you’ll pay the tax on that income later. You will also retain all your £1,000 savings allowance, and may still stay out of the 40% band for 2018/19, as the threshold for that year will be higher.
The main thresholds are (2017/18 figure first, then 2018/19):
• basic personal allowance: £11,500 (£11,850) – basic rate tax (20%) starts
• higher rate threshold: £45,000 (£46,350) – 20% rate increases to 40% and savings allowance reduces from £1,000 to £500.
• married couples allowance: transfer of 10% of personal allowance is possible where the higher earner has income of no more than £45,000, (£46,350)
• child benefit clawback: income between £50,000 and £60,000 (no change for 2018/19)
• withdrawal of personal allowance: income between £100,000 and £123,000 (£123,700 in 2018/19)
• additional rate: income above £150,000 – 40% rate increases to 45% (no change for 2018/19), savings allowance removed, and pension annual allowance reduced
Gift Aid donations and pension contributions can increase the value of most of the above thresholds. You can elect for donations to be treated as being paid in the preceding year
Income that can easily be moved from year to year includes:
• bonus from your own company
• dividends from your company
• encashments of life assurance bonds
• withdrawal of taxable income from pension schemes in ‘drawdown’
Consider moving income or deductions around 5 April 2018.