What do you need to consider for tax year end?
Deborah: So, Laura, you’re really busy preparing 2018/19 tax year end returns at the moment. What do we need to be thinking about before tax year end on 5th April 2020, bearing in mind there’s a Budget on 11th March? What allowances should everyone be looking at if they can to maximise tax breaks?
Laura: It’s a really crucial time at the moment because the Budget may bring some news on Entrepreneurs’ Relief, which is a capital gains tax relief for entrepreneurs. We expect the relief will be reduced. There isn’t much time between the Budget and tax year end so decisions will need to be made quickly depending on the news.
I’d highly recommend looking into ISA cash allowances or Stocks & Shares ISAs, as they allow you to save £20,000 per tax year. If you don’t use, you lose! Don’t forget about Junior ISAs too, because these can help your children in the future if they decide to go to university or buy a house.
You can also gift up to £3,000 each year of capital without attracting Inheritance Tax – this can be increased to include last year’s too, if you didn’t use it. There are also other amounts you can give away each year that don’t count towards this ‘gift allowance’, including wedding gifts and smaller sums. You can gift any excess income to help with IHT planning, and this can be invested for the person you want to gift it to. Gifts to charity help with tax planning aswell, as Gift Aid is tax-efficient.
There are also changes for residential property sales from April 2020. It means you’ll need to declare the sale and pay the capital gains tax within 30 days of the sale, unless the home was your main home throughout ownership or you calculate no tax being due. Previously, this could be left until you’d filed your tax returns, which could be as long as 20 months after the sale.
So, if you’re thinking about selling a residential property, where it hasn’t been used as your main home throughout ownership, it would likely be better to sell it before 6 April 2020 to utilise as much of the relief as possible, and the tax wouldn’t be due until January 2021. If you wait until after 6 April 2020, the tax would be due within 30 days.
What about your clients, Deborah? I know you deal with a lot of clients with pensions and investments, and there’s lots to think about in the run up to tax year end?
Deborah: Using pension payments can help reduce your tax bill if you’re a higher rate tax payer. There’s an annual allowance up to £40,000, depending on your circumstances. I can help people work out their optimum contributions and if they do have a full annual allowance. Even NHS and defined benefit pensions need to be taken into account here. You can carry forward any unused allowances from the previous three years, so if you haven’t used all of your allowance for the 2016/17 tax year, you lose it on 5th April 2020. I can help people work out what allowances they have left.
There are pensions for children too, believe it or not! You can gift £3,600 gross per year (from income or capital, as you mentioned) to a pension. Imagine what a great gift that would be – early retirement! It’s worth thinking about if you’re using personal allowances to draw pensions, in order to save tax in the future.
Also, if your employer allows salary sacrifice, there are national insurance savings to gain, too! And some schemes allow you to change once a year, maybe the new tax year.
Laura: Some clients are high earners and may not be able to put in their full £40,000. Again, it’s good to help people check this. Higher earners may also want to think about tax efficient investments like the Enterprise Investment Scheme or Venture Capital Trusts, but these are fairly specialist and not for everyone!
Deborah: If you have shares you’re looking to sell, then straddling the safe tax over two years gives double the capital gains allowances – £12,000. Or, it can be a good idea to transfer some to their spouse to double up. If you’re married and your spouse doesn’t use all of their personal allowance, you may be able to claim some of this if you’re a basic rate tax payer. All of these small, useful tips can really mount up and make a huge difference.
So, what about business clients, Laura? Is there anything extra they should be looking at?
Laura: I’d recommend to remember that the dividend allowance is £2,000, which means that you can receive this amount of dividends tax free. Any bonus payments could be taxed differently depending on the rates in the year. You could pay before the tax year end – it doesn’t matter when the company year end is, your own income is tax year to tax year.
Obviously this is a brief summary on some topics to think about. There are so many considerations to make and I’d always recommend people speak to their adviser.