Should auld taxes be forgot, and ne’er brought tae mind?
Should auld taxes be forgot, and auld lang syne?
So sang Rabbie Burns (with a name like that he’d be a big fan of FIRE for sure)
Many Happy Tax Returns everyone!
So the tax year is over again for another year but do you know why the tax year is as it is? I used to think that it was so that accountants wouldn’t be too busy over Christmas/New year but there’s actually an even more fantastic reason for it falling on this date in the UK.
So, with that little bit of education out of the way, what’s been going on this last tax year for GFF?
Both the Lady and I have been working full time and earning money. My bonus this year was a nice surprise and overall, income is above what I was planning for. I plan and track our Income to predict our tax liability. This means we can tailor our investments to ensure that we are planning for tax. Salary is quite predictable but it can change. It’s one of the benefits of being an employee.
Taxes for NI and Income Tax are paid by the employer and taken out of our salaries so we only see the numbers on the payslip but never get the money ourselves. The tax paid is based on what the HMRC think we’ll earn as part of their tax code – but we have complicated arrangements so it’s not so straightforward. We did both receive tax rebates in April 2018 from early submission of our Self Assessment tax forms. I always do these early as we invest in VCTs and can claim 30% tax back on our investments. that’s an advantage of having spare funds for investment. Also included in the Self Assessment form is the number of business miles I drive for work. This adds up to over £1000 in tax paid back to me – which is some pay off for sitting in my car so much.
In the last tax year, I heavily paid into my company stakeholder pension as there was salary sacrifice on offer. It ends up being a very good deal and if you are able to avail of it, go ahead. I’ve now reduced my pension as part of a Ready, Aim, FIRE program which means more taxable pay and higher NI payments but I can mitigate the tax by using the VCTs. The Lady’s pension is not as generous and she contributes 5% of her salary with 5% being matched.
Capital Gains Tax
I call this the rich person’s tax break as that’s what it is. The average person on the average salary won’t be able to fill their ISA but if you have lots of un-sheltered assets that have gone up in price, you would be liable for tax to be paid on it. The current CGT allowance is £11,700 per person.
Unfortunately, I’ve not really sold anything this year that comes close to risking hitting the £11,700 limit. I had hoped that I could sell my shares in beer company but I failed to do so. Never mind, there’s always next year.
Savings Interest & Dividends
Some extra tax needs to be paid by the Lady for some of her Renewable Energy investments that paid well last year (and better predicted for this year). Whilst we did have savings interest (like from P2P) and dividends, these are not above the £1,000 and £2,000 allowance limits – (we also have some P2P bad debt relief that can be used up. The extra tax will be mopped up by the VCTs.
I’ve filled my LISA with £4,000 (topped up by the government to £5,000) and invested in a non-dividend paying ETF – buy and hold. Same for the Lady but she’s only put £2,400 in – I have a few hours to decide if I’ll top up to the full £4,000 – but we need to phone them to sort out some account admin problems that’s been preventing us from using it properly. I like the LISA – and think it’s got a place in an FI/RE portfolio but I’m uncertain if I’d rather have the money available now or how likely I’d be to take the hit and lose 25% by withdrawing before I’m 60.
JISAs or Junior ISAs are tax free savings accounts for children under 16.
They are of no interest to me. GFF doesn’t believe in JISAs and the Master and Little Lady will get nothing and like it!
But seriously, I know of some people and some relatives who have family pay into their JISAs and that’s all very good. We don’t and we don’t have enough free cash to easily fill our own ISAs so the JISA comes very low on the list of financial priorities.
I pay 1p into both my and the Lady’s SIPPs to allow us to claim £1 back in tax allowance (equivalent to 20p for basic rate tax payers). That’s a little cheapskate trick that I found out as the HMRC self assessment system rounds things up (or sometimes down) – why not take advantage of it?
GFF doesn’t like to talk about charity much except to slag it off and say that it’s now an industry and whilst people’s intentions are good – it’s mostly a waste of time, money and effort for something that has more to do with making people feel better about themselves than actually helping.
I do however donate to charity a surprising amount of money and claim this back from the HMRC – the amount I donate always adds up to £X,XXX.01 by the way.
Another tax year has come and gone. Long live the new tax year. We have lots to look forward to – with potentially me losing paid salary for the first time in 15 years, the Lady getting nothing whilst on maternity leave for 3 months (after 6 full pay, 3 SMP).
I expect to complete our tax returns by this time next week. It’s easy to do if you keep a good record and if you are owed money, then it makes sense to get that back as soon as possible.
How has your tax year been? Will you be filling in your return over the weekend like GFF or leaving it to the last minute (like everybody else).