Year end Tax Planning Reminder

It is that time of year again, when we start to think about the things we need to do for the tax year that we haven’t yet done. Save today for tomorrow!

Accountants and Financial Advisers alike provide their hints and tips to their clients on how best to maximise their wealth through a variety of strategies which include investment, tax-efficient saving, business restructuring and generally ensuring you have all your ‘T’s’ crossed and ‘I’’s dotted.

Have you taken the necessary steps? Some useful points follow:

ISA’s – don’t forget to use your ISA allowances. The maximum that can be invested each tax year is £20,000.

LISA’s – why not open a LISA and get a 25% Government credit. Invest £4,000 and they will give you £1,000 for free. You can use these to buy your first home or save for retirement. Withdrawing early incurs a 25% penalty.  You can invest if you are aged 18-40 years.

Junior ISA’s – don’t forget your kids allowances. £4,128 can be invested on behalf someone aged 18 and under.

Pension Contributions – you can invest a minimum of £3,600 (gross) and up to £40,000 (gross) per year, with a potential carry forward for up to three years of unused allowances. If you have had a pension and now wish to contribute a lump sum, you could therefore invest £160,000 before the end of the tax year! But you best take advice to make sure it’s the right thing to do.

EIS – Enterprise Investment Scheme investments offer tax breaks. A 30% tax reducer; growth capital gains tax free, loss relief and inheritance tax relief are all on offer if these are of interest to you. You must keep the shares for more than three years to qualify.

VCT – Venture Capital Trusts are like EIS in concept. They are smaller, riskier companies seeking growth investment. With a VCT your money is pooled with other investors. You get the same 30% tax reducer if you buy new shares and must keep them for five years. You don’t pay capital gains tax on the sale of VCT shares (provided the Company remains a VCT company).

Income-splitting – your spouse or civil partner may earn more, or less, than you. Think about how you can equalise income and/or use each other’s allowances and basic tax rate bands. Speak to us if you want advice on this.

Rent-a-room Relief – renting a home in your house can be done tax free, where the rent is less than £7,500. Over that amount you only pay income tax on the excess!

Capital gains – sell, sell, sell. If you hold assets standing at a gain, you can make those gains tax-free if they are below the annual exemption of £11,500 per person. You could even buy the asset back (shares for example) after 30-days, but don’t get caught by bed-and-breakfasting rules! If you have a spouse of civil partner, then you might transfer assets between you to maximise allowances*

(*But beware where the transfer is a land transaction as Stamp Duty Land Tax could be payable- speak to us if you are considering this)

Inheritance tax – if this is an issue for you, then consider using your annual exemption for gifts of £3,000. If you haven’t used last year’s you can use that too, making a total of £6,000 out of your potential estate immediately (and that alone saves £2,400!). It’s also possible for parents to make gifts in consideration of marriage of £5,000, grandparents the same but for £2,500 and if you are not a relative then up to £1,000 to any other person. There is a small gifts exemption of £250 which can be made to any number of people if another exemption has not been used on them. Normal expenditure out of income is immediately exempt if you can show gifts do not impact on your day-to-day living standards.

Nil Rate Bands- reconsider your Will and who assets are being left to and in what form. Careful planning on this topic is often at the back of people’s minds and sadly it is not unknown for planning to be left until it is either too late, or it is not done at all with unnecessary tax loss then incurred by those left behind.

Businesses – you should think about structure. Perhaps incorporated a sole trade is the way to go and will save on tax and national insurance. This needs careful planning as there are lots of other considerations to make when incorporating your business.

Businesses – consider the timing and reliefs available for large capital expenditure and whether reinvestment of sale proceeds offers opportunities for tax deferral. Using the annual investment allowance of £200,000 to buy plant & machinery for your business achieves a 100% write-off in year one, saving therefore up to £38,000 in company taxes.

Exit Planning – if you are seeking to exit a business, you should consider when is the right time for you to do so and what form an exit from the business might look like. We have lots of ideas and solutions for anyone looking to do this and the best thing to do is to speak to us so we can offer tailored advice.

Hopefully that’s a good spread to whet your appetite and if there is anything we can help with then contact us.

None of the foregoing constitutes advice. Individual circumstances differ and if you are planning on any of the above then you should seek the advice of a properly qualified professional who will be able to advise you whether your plans are suitable in your own circumstances.