Year End Tax Tips

Income Tax

  • The personal allowance is reduced by £1 for every £2 of income above £100,000 and where income exceeds £123,700, the personal allowance is lost. The effective rate of income tax becomes 60%!
  • You may be able to change income to a non-taxable form, make pension contributions or tax favoured investments, or donate to charity.
  • Consider whether there are benefits to transferring income yielding assets to a spouse or civil partner.
  • If a higher rate or additional rate taxpayer makes a Gift Aid donation, further tax relief is available to the donor.

Capital Gains Tax

  • The annual exemption for 2018/19 is £11,700. It cannot be carried forward. Consider whether you can realise gains to the extent of the annual allowance.
  • Transfers between spouses and civil partners are at no gain and no loss and therefore respective annual exemptions could be fully used.
  • Unused losses are carried forward indefinitely and can then be offset against future gains. A formal claim is required. The claim must be submitted to HMRC within four years of the end of the tax year of the loss.
  • The rules for qualifying assets for entrepreneur’s relief can easily be broken. There were changes announced in the 2018 budget and the ownership period extends to 24 months from 6 April 2019. Consider checking the eligibility for entrepreneur’s relief in particular if you intend to sell assets.
  • If you own more than one home, consider whether a principal private residence election is needed. You have two years to make an election.
  • If you have permanently separated from your spouse during this tax year, you may want to consider dealing with transferring assets between you before 6 April 2019. This is because assets can pass between separated spouses without capital gains tax in the year of permanent separation.

Savings and Investments

  • The maximum Individual Savings Accounts allowance is £20,000. You must save or invest by 5 April for it to count for that year and if you don’t use the allowance it is lost.
  • If you subscribe for shares qualifying for Enterprise Investment Schemes (EIS) or Seed EIS (SEIS) relief, your tax liability for the year may be reduced by up to 30% of the sum invested. In addition, capital gains from disposals in the previous 36 months or following 12 months may be deferred if reinvested into EIS shares.
  • You can invest up to £1m under EIS in the year or up to £2m if you invest in Knowledge Intensive Companies.
  • If you subscribe for shares in a small start-up company, the seed EIS scheme has income tax relief at 50% of the sum invested against tax in 2017/18 or 2018/19. The maximum qualifying investment is £100,000.
  • EIS and SEIS shares are normally exempt from CGT and IHT.
  • Investment into Venture Capital Trusts attract income tax relief at 30% of the amount subscribed, subject to a maximum investment of £200,000 per tax year. The investment must be held for a minimum of five years in order to retain the relief. Dividends are income tax free gains may be exempt from CGT.
  • Holding “family” wealth within an investment company may be efficient in particular where it is intended to grow those assets (roll up income and gains) or divest wealth to other family members. Family Investment Companies enable parents to retain a certain level of control over assets whilst facilitating estate planning.

Residential Buy-To-Let

  • Interest eligible for tax relief at the higher and additional rates (40% and 45%) is restricted for 2018/19 by 50% and 2019/20 by 25%. The remaining interest will only be relieved at the basic rate (20%). From 6 April 2020, a higher or additional rate taxpayer will only be able to claim relief at the basic rate.
  • As a result of the mortgage interest restrictions, many property owners have incorporated.
  • Annual Tax on Enveloped Dwellings  can apply when residential property with a value of at least £500,000 is held in an envelope, such as a limited company. If an “envelope” (other than a charity) owns property at 6 April 2019, a return will need to be filed by 30 April 2019 and any tax accounted for. Also, a return must be filed by an “envelope” within 30 days of purchase.

Non-Residential Property

  • The 2018 Budget introduced a new tax relief for businesses (including property rental businesses) that incur capital expenditure on the construction or improvement of non-residential buildings and structures. Structure and Buildings Allowances will apply at an annual rate of 2% on a straight-line basis once the property has been brought into use. Investors in commercial property should review the detailed rules when they are available.

Estate Planning

  • The inheritance tax nil rate band is frozen at £325,000 until 5 April 2021.
  • From 2017/18, the Residence Nil Rate Band was introduced as an additional nil rate band of £100,000 where a residence is passed onto a direct descendent. This additional allowance will increase each year by £25,000 reaching a maximum of £175,000 by 2020/21.
  • Outright transfers you survive by seven years are outside the scope of inheritance tax.
  • Outright transfers are often not favoured and instead gifts into trust are preferred although are also chargeable lifetime transfers. Gifts into trust may be structured to utilise the nil rate band or other reliefs and exemptions.
  • An amount of up to £3,000 can be given away each tax year and, if unused in a year, that amount can be carried forward for one year and utilised in that later year.
  • You can give up to £250 to as many people as you wish each tax year.
  • If your income exceeds your expenditure, you can give away the excess.
  • Certain investments are efficient for inheritance tax, for example, shares in qualifying AIM listed companies. Such investments benefit from business property relief and as such, are relieved from inheritance tax after they have been owned for two years. At that time, transfers into trust could be appropriate.
  • If you leave at least 10% of your estate on death to charity, the rate of inheritance tax charged on the balance of your estate is reduced from 40% to 36%.

Pensions

  • The lifetime allowance was reduced from £1.25m to £1m from 6 April 2016. You can now elect for Individual Protection 2016 to preserve your individual allowance at the lower of £1.25m or the actual value of your pension funds at 5 April 2016.
  • Stakeholder pensions allow contributions to be made by, or for, all UK residents, including children and grandchildren from birth.
  • Pension investors aged at least 55 (rising to 57 from 2028) can access their pension fund as a lump sum with the first 25% being tax free and the rest as taxable income.

Companies

  • The main rate of corporation tax is 19% although falling to 17% from 1 April 2020.
  • Bad debts should be reviewed so provisions and/or impairments can be made.
  • It might be possible to make a provision for bonuses and/or other remuneration to be paid in the following year, thus advancing tax relief.
  • Tax relief for contributions to occupation pension schemes is given on amounts actually paid in the year, rather than the amounts provided for in the accounts.
  • The company should consider whether research and development relief may be claimed.
  • You may be able to make use of the annual investment allowance and other capital allowances by bringing forward capital expenditure. The 2018 Budget announced an increased the annual investment allowance to £1m from 1 January 2019. There is the opportunity to enhance entitlement to 100% First Year Allowances, where a manufacturer has installed energy efficient components into manufacturing/production processes, which comply with the Enhanced Capital Allowances scheme.
  • Also, structures and buildings allowance was introduced at 2% per annum for new commercial buildings acquired on or after 29 October 2018.
  • Business Premises Renovation Allowances regime provided for an initial 100% tax allowance on conversions or refurbishments of commercial property in Government approved disadvantaged wards. Whilst abolished by 1 April 2017, businesses wishing to take advantage of BPRA should be aware that the opportunity window for claiming the relief is still available for open computational periods ending before 31 March 2017, which can be amended until 31 March 2019.