Year End Top 20 Tax Planning Tips

As we approach the end of the 2019/20 tax year so you still have time to take advantage of any final tax planning opportunities. Here are our top 20 tax planning tips for you;

1. The tax free personal allowance of £12,500 can’t be carried forward, so if you are a director of a limited company ensure you have received a salary of at least above the Class 1 National Insurance lower earnings limit of £6,136. If you have no other earnings, this salary would be tax/NIC free and counts towards your state pension. It is also a tax deductible expense for the company. If your company does not have a PAYE scheme set up, please contact us for assistance.

2.  An individual can transfer up to 10% of their unused personal allowance to their spouse or civil partner provided they are a basic rate taxpayer, ie £1,250 for 2019-20, which can be done on your Tax Return. An election to do this can be made up to four years after the end of the relevant tax year, and thus a transfer can still be made for 2015-16 providing the claim is made by 5 April 2020.

3.  Ensure you have utilised your £2,000 tax free dividend allowance if you have shares. Consider transferring or issuing new shares to a spouse or civil partner.

4.  Have you utilised your full ISA &/or LISA allowances totalling £20,000 for the tax year? All income and gains derived from investments within such accounts are tax free. If you are aged 18-39, a LISA enables you to save up to £4,000 per tax year and receive a £1,000 government bonus towards your first house or retirement.  For children/grandchildren you can invest up to £4,260 tax free in a Junior ISA. This is increasing to £9,000 from 6 April 2020. Speak to your financial adviser.

5. Preserve entitlement to Child Benefit if your total income is between £50,099 and £60,000, or remain eligible for the tax free childcare scheme by keeping your total income below £100,000, by making personal pension contributions and donations to UK/EU charities.

6.  Avoid a marginal rate of tax of 60% for those with total income in between £100,000 and £125,000 by making personal pension contributions, and donations to UK/EU charities.

7.  Claim expenses paid wholly, exclusively and necessarily in relation to your employment, such as business mileage, use of home office, professional fees, pension contributions and uniform expenses. You have four years from the end of the tax year to claim overpayment relief, so any relief for the tax year ended 5 April 2016 must be claimed by 5 April 2020.

8. Using rent-a-room relief, you can let a room in your home and receive rental income up to £7,500 tax free per tax year.

9.  Consider a salary sacrifice scheme and exchange a portion of your salary for a tax exempt benefit, such as employer pension contributions, the cycle to work scheme or an electric car and save income tax and national insurance at 32% for a basic rate taxpayer and 42% for a higher rate taxpayer.

10.  Have you utilised your annual tax free capital gains tax exemption of £12,000. ‘Use it or lose it’. It can’t be carried forward to future years.

11.  Transfer income yielding assets to your spouse/civil partner if they pay tax at a lower rate. Consider changing the income split to your actual share of ownership of an asset. Please contact us for more information.

12.  Determine your main residence if you have more than one home. Consider making a Principal Private Residence election. You have two years to make the election from the acquisition of the second property or a change of circumstance,. We’ve slipped this in but this is not dependent on the tax year.

13.  Sell or gift UK residential property before 6 April 2020 to avoid the requirement to make a payment on account toward the capital gains tax (CGT) liability. From 6 April 2020 there are major changes to Principal Private Residence relief, the final period of ownership exemption is decreasing from 18 months to 9 months and lettings relief will be restricted to landlords in shared occupancy with tenants.

14.  Check your most recent PAYE code to make sure you are on the correct tax code before the start of the new tax year.

15.  For company directors/shareholders company pension contributions may be more tax efficient than personal contributions.

16.  You will receive tax relief on the lower of your earnings or £40,000 when you make a personal pension contribution. Any unused Annual Allowance will be carried forward for three tax years. If your ‘adjusted income’, ie  total income plus pension contributions is over £150,000 you will have a lower annual allowance. This threshold for the tapered Annual Allowance is increasing to £240,000 from 6 April 2020. In 2020/21 the minimum annual allowance for individual’s with ‘adjusted income’ in excess of £312,000 will decrease to £4,000 from £10,000. If you are a higher rate taxpayer you should check you have claimed all the additional tax relief.

17.  If you have no earnings a net premium of £2,880 can be paid into a stakeholder pension and the pension scheme can reclaim basic rate tax from HMRC. Have you considered opening a SIPP for your spouse, children or grandchildren?

18.  Ensure your pension funds do not exceed the Lifetime Annual Allowance of £1.055m. Funds in excess of this limit will suffer penalty tax charges when you take pension benefits. Consider making a pension protection application. Contact your IFA for more information.

19.  You can make gifts up to £3,000 each year exempt from inheritance tax (IHT). The allowance can be carried forward for one tax year. Consider regular gifts out of surplus income. These are IHT free and reduce the size of your estate for IHT purposes.

20.  From 6 April 2020 the residence nil rate band is increasing to £175,000 per person. The exemption applies to a ‘family home’ transferred by a married couple or those in a civil partnership to children or other lineal descendants. Ensure you update your Will.

Compliance

2018/19 Tax Return

If you have not yet filed your Tax Return for the year ended 5 April 2019 you should do so as soon as possible. If you are self-employed, you have until 23 April 2020 to file your 2018/19 Tax Return to still qualify for the Self-Employment Income Support Scheme. A daily penalty of £10 will be charged for 90 days for Tax Returns outstanding on 1 May 2020. 

Making Tax Digital

From 1 April 2020 all VAT registered businesses will be required to keep electronic records and submit their VAT returns digitally. They will also be required to have digital links between all parts of their functional compatible software. The current suspension of penalties on late MTD filings will end with penalties charged on a cumulative basis, based on the number of offences in the past 12 months. This could reach 15% of the VAT due, plus fines of up to 100% of the undeclared VAT as a result of careless or deliberate inaccuracies. Please contact us if you require support setting up cloud accounting software, help with online bookkeeping or enrolling your business for MTD.  You can read more about the rules here.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.