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END OF YEAR TAX PLANNING IDEAS 2019/20

With the end of the tax year fast approaching, now is the time to think about whether anything can be done to minimise your tax burden.

Budget day is 11 March. We don’t know yet what will be in it, but it is worth considering the following before it is too late.

For business owners, this might be drawing dividends to make use of your tax bands. It might be making pension contributions to make use of brought forward annual allowances or to preserve your personal allowance.

If you are planning on selling a property that has been your main residence for a part but not all your ownership, now would be the time since the rules are changing on 6 April 2020.

 DIVIDENDS
For the year ended 5 April 2020 the dividend allowance, on which dividends are tax free is £2,000.  For dividends above this, basic rate taxpayers will have a 7.5% tax liability, higher rate 32.5% and additional higher rate taxpayers 38.1%. Taxpayers with income above £100,000, will lose £1 of their personal allowance for every £2 of income above £100,000 so the effective rate on dividends shoots up between £100,000 and £123,700 for 2019/20.

For business owners, it may be more tax efficient to take dividends before 5 April 2020. Please call us before 5 April 2020 to discuss your situation.

PENSION CONTRIBUTIONS
Reviewing your pension contributions should form part of your end of year planning, whether it’s to make use of your annual allowances and those unused from earlier years (2016/17 onwards) or to preserve your personal allowance when your income is over £100,000. The maximum that can be held as a Lifetime Allowance is currently £1,055,000.

The annual allowance remains at £40,000 for those with income below £150,000. Whether or not you are earning, any UK resident under 75 can contribute up to £2,880 into a stakeholder pension each year. HMRC will add an additional 20% to make it £3,600.

CAPITAL GAINS TAX
All UK tax residents are entitled to an annual CGT exempt amount which for 2019/20 is £12,000.  This is especially useful for those with readily realisable assets such as shares. Please note that if you buy back the shares within 30 days, anti-avoidance rules will kick in. However, these will not apply if another person such as a spouse acquires the shares. Inter-spouse transfers or gifts of assets remain free of CGT. Married couples can therefore look to maximise their combined allowances of £24,000.

The buy back rules do not apply if you are moving your investments into an ISA tax wrapper (see below). This tax planning is sometimes called “Bed and ISA” and is an effective way of using your CGT annual exemption and ISA allowance.

Now might be a good time to consider whether any assets or investments have fallen in value and are now worthless. This may include a loan to a UK business which is now irrecoverable.  If the loss relates to shares in an unquoted company that carried on a trade, it may be possible to offset the loss and reduce your income tax liability.

INHERITANCE TAX
The annual gift exemption of up to £3,000 can be used in each tax year. If unused, the allowance can be carried forward one year, so if you did not make gifts last year, you may consider making gifts of £6,000 before the end of the tax year. ‘Gifts out of income’ is still a further valuable exemption and records should be kept if you wish to make use of these exemptions. Please contact us so that we can advise what records should be kept and the format they should be in to ensure that they comply.
The nil rate band currently remains frozen at £325,000. Wills should be regularly reviewed to take advantage of the new residence nil rate band which was introduced from 6 April 2017.

Parents and grandparents can also pay into a Lifetime ISA opened by their adult children or grandchildren (i.e. aged 18 or over), which could be a useful part of inheritance tax planning.

ISAs
Individual Savings Accounts (ISAs) are savings accounts that are completely free of tax on both the income and capital growth. There is no lock-in period, minimum subscription or lifetime limit. The maximum contribution for 2019/20 remains £20,000.  The limit for a Lifetime ISA is currently £4,000 and there is an additional allowance of £4,368 that can be placed by parents into a junior ISA for children, there is also a Child Trust Fund into which you can place £4,260.

ENTERPRISE INVESTMENTS SCHEME (EIS), SEED ENTERPRISE INVESTMENT SCHEME (SEIS) and VENTURE CAPITAL TRUSTS (VCTs)
The EIS, SEIS and VCT reliefs were introduced to provide incentives to investors to invest in small unquoted companies, which are generally perceived to be higher-risk investments. The main incentive is income tax relief but there are also other valuable tax reliefs including CGT deferral relief, loss relief on disposal, CGT exemption and IHT relief where conditions are met.

ANNUAL PROPERTY OR TRADING ALLOWANCE
From 6 April 2017, you can get up to £1,000 a year in tax-free allowances for gross property or trading income. If you have both types of income, you’ll get a £1,000 allowance for each. If you are in receipt of such income then you should consider claiming the allowance. Gross income means the total amount you get before any allowances or expenses. Please note that you can’t deduct any other expenses or allowances if you claim this allowance.

If any of the above are of interest to you, please call us on 0207 384 2647

Requirement to Correct (RTC) deadline 30 September 2018

Many taxpayers may find themselves with penalties of 200% of the tax due if they have not brought their tax affairs up to date by 30 September 2018.

The government have given taxpayers until 30 September 2018 to come forward about any undisclosed income and capital gains from offshore sources to 5 April 2017. The deadline coincides with the government and HMRC receiving a huge amount of financial data from over 100 different countries signed up to an exchange of information called the Common Reporting Standards (CRS).

These rules will not only affect people deliberately evading UK tax but also those unaware that a tax liability exists or might exist from ordinary foreign bank accounts or properties, for example.

The main penalty for non-compliance by 30 September 2018 is 200% of the additional tax due. However, if the individual was aware of the requirement to correct, there could be additional penalties based on 10% of the value of the underlying asset. In some circumstances, HMRC also have the power to ‘name and shame’.

If you think this may apply to you or would like a tax health check just in case, please get in touch on 02073842647.

End of year tax planning

DIVIDENDS

From 6 April 2018, the dividend allowance, on which dividends are tax free is being reduced to £2,000.  For dividends above this, basic rate taxpayers will have a 7.5% tax liability, higher rate 32.5% and additional higher rate taxpayers 38.1%. Taxpayers with income above £100,000, will lose £1 of their personal allowance for every £2 of income above £100,000 so the effective rate on dividends shoots up between £100,000 and £123,000 for 2017/18.

In many cases, it will be more tax efficient to take dividends before 5 April 2018. Please call us before 5 April 2018 to discuss your situation.

PENSION CONTRIBUTIONS

Reviewing your pension contributions should form part of your end of year planning, whether it’s to make use of your annual allowances and those unused from earlier years (2014-15 onwards) or to preserve your personal allowance when your income is over £100,000. The maximum that can be held as a Lifetime Allowance (LA) is currently £1,000,000.  This will be increasing to £1,030,000 for the year ended 2018/19.  The annual allowance (AA) remains at £40,000 for those with income below £150,000.

CAPITAL GAINS TAX

All UK tax residents are entitled to an annual CGT exempt amount which for 2017/18 is £11,300.  This is especially useful for those with readily realisable assets such as shares. Please note that if you buy back the shares within 30 days, anti-avoidance rules will kick in. However, these will not apply if another person such as a spouse acquires the shares. Inter-spouse transfers or gifts of assets remain free of CGT.  Married couples therefore can look to maximise their combined allowances of £22,600.

INHERITANCE TAX

The annual gift exemption of up to £3,000 can be used in each tax year. If unused, the allowance can be carried forward one year, so if you did not make gifts last year, you may consider making gifts of £6,000 before the end of the tax year. ‘Gifts out of income’ is still a valuable exemption and records should be kept if you wish to make use of these exemptions. Please contact us so that we can advise what records should be kept and the format they should be in to ensure that they comply.

The nil rate band currently remains frozen at £325,000. Wills should be regularly reviewed to take advantage of the new residence nil rate band which was introduced from 6 April 2017.

ISAs

The maximum contribution for 2017/18 is £20,000.  The limit for a Lifetime ISA is currently £4,000 and there is an additional allowance of £4,128 that can be placed by parents into a junior ISA for children.

ENTERPRISE INVESTMENTS SCHEME (EIS), SEED ENTERPRISE INVESTMENT SCHEME (SEIS) and VENTURE CAPITAL TRUSTS (VCTs)

The EIS, SEIS and VCT reliefs were introduced to provide incentives to investors to invest in small unquoted companies, which are generally perceived to be higher-risk investments. The main incentive is income tax relief but there are also other valuable tax reliefs including CGT deferral relief, loss relief on disposal, CGT exemption and IHT relief where conditions are met.

ANNUAL PROPERTY OR TRADING ALLOWANCE

From 6 April 2017, you can get up to £1,000 a year in tax-free allowances for gross property or trading income, so if you have not already done so, now would be a time to make use of it before 5 April 2018. If you have both types of income, you’ll get a £1,000 allowance for each. Gross income means the total amount you get before any allowances or expenses. Please note that you can’t deduct any other expenses or allowances if you claim this allowance.

If any of the above are of interest to you, please call us on 0207 384 2647

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