Year end planning tips
Our tax, legal and financial planning experts provide some top tips for year end.
1. Where you are married or in a civil partnership and both of you are either basic rate taxpayer or non-taxpayer, you may be able to benefit from transferring some of your personal allowance to the higher earner.
2. For those who are in receipt of child benefit, a review of your income may be beneficial. Child benefit starts to be withdrawn where your income exceeds £50,000 and completely ceases when it reaches £60,000.
If one of you is near the threshold but the other is substantially under, could there be a way to equalise the position between you. Making pension contributions or gift aid donations reduces your income for child benefit purposes and so can reduce the child benefit lost in certain circumstances.
3. Making gift aid donations, investing in Enterprise Incentive Scheme qualifying shares or making further pension contributions could all help in reduce your income tax liability. It is important to get advice as to whether these measures are appropriate for you. However, if you are expecting a higher than average Income Tax liability you may benefit from looking at these ahead of 5 April to maximise your tax relief as soon as possible.
1. In the 2020/21 tax year the Residence Nil Rate Band (“RNRB”) for Inheritance Tax (“IHT”) increases to £175,000. The RNRB applies to reduce IHT on death where you leave residential property to lineal descendants, such as children or grandchildren. There are some traps and pitfalls for the unwary with the RNRB that mean, if you haven’t already, you should review your Will to ensure your estate will receive this additional inheritance tax allowance.
2. In the new tax year, married couples or those in civil partnership, may wish to think about equalising their income for the coming year. They may wish to gift assets (property or shares being the primary ones) into joint names with their spouse or other individuals so that income can be split between them.
A gift of property into joint names is very often done by way of a Declaration of Trust, and our legal team here can advise and draw up these documents on your behalf. If gifting to other individuals, watch out for capital gains tax implications. Where property is subject to a mortgage then Stamp Duty Land Tax would also need to be considered.
3. Review your income and expenditure to take advantage of the ‘gifts out of income’ exemption for inheritance tax purposes. It is a little-known fact, that gifts out of disposable income are immediately exempt from inheritance tax, unlike gifts out of capital which are subject to the seven-year rule.
So, you could review your disposable income at the start of each financial year to see what disposable income you have and take some advice on how to structure any gifts to ensure your estate can claim this exemption when the time comes.
1. Maximise ISA allowances – The maximum amount that can be paid into an Individual Savings Account (ISA) for the 2019/ 20 tax year is £20,000. Within this tax wrapper you can enjoy tax free growth.Whilst you cannot carry forward unused allowances from previous tax years, if you have made a withdrawal within the year you can replenish this amount without it impacting on your allowance.
2. Make full use of pension annual allowance including carry forward. Do not jeopardise any protection. For 2019/20 the annual pension contribution limit which you can receive tax relief on is ordinarily 100% of your earnings, with a cap of £40,000. If you earn less than £3,600 or you do not have any earnings, your annual pension contribution limit would ordinarily be £3,600.Beware that if your adjusted UK income is over £150,000 your annual allowance would ordinarily be reduced by £1 for every £2 over £150,000 to a minimum of £10,000, subject to threshold income being over £110,000. Depending on particular circumstances, unused annual allowances from the three previous tax years can usually be rolled over.
3. Consider your capital gains allowance – Capital gains tax is a tax on the profit you make when selling an asset, such as an investment or second property. Individuals will ordinarily have an annual allowance of £12,000 before capital gains tax applies which cannot under be rolled over to future years. It is however individual, so if an asset is in joint names it could potentially be subject to an allowance of £24,000. (2019/20 tax year).Not all investment portfolios are subject to CGT though so seek Independent Financial Advice.
The content of this article is for information only and does not constitute formal financial advice.This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making, any decisions. Always obtain independent, professional advice for your own particular situation.
For more information and advice, please contact us via email or call +44 (0)330 124 1399.
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