We are getting closer to the end of the tax year on 5th April, so if you haven’t fully thought about how you can minimise your personal tax, then below are our tax tips!
Top personal tax tips:
Cash ISA’s are savings accounts that you never pay tax on the interest arising. Make use of your annual ISA allowance and the Junior ISA allowances which are currently £20,000 and £4,368 respectively. It is worth noting that, for savings in “normal” bank accounts, the first £1,000 of interest is tax free for taxpayers in the basic rate band, and £500 for higher rate taxpayers. It is always worth checking the interest rates on offer: zero tax does not necessarily create a higher net return.
LISAs If you are under 40 and are interested in ISAs, you should consider putting some funds into a Lifetime ISA. There is an annual limit of £4,000, but HMRC will top this up by 25%, subject to terms and conditions of course.
Pensions If you do not already have a personal pension scheme, then it is worth seeking the advice of a qualified pensions adviser to see how you could benefit. We can put you in touch with an IFA if you need someone to speak to. If you have income of more than £110,000 you must seek specialist advice before paying into a pension scheme, otherwise it could cost you dearly. The lifetime allowance is due to rise to £1.075m for the 2020/21 tax year.
More on Pensions If you have neither a pension or much spare cash, you should consider putting a nominal sum (just £10 would do) into a personal pension scheme before 5th April. By doing this, you can create good tax planning options in later years, since you may be able to carry forward unused annual pension contribution allowances.
Capital Gains Tax If you have assets (particularly shares) which have achieved substantial growth, you may wish to consider selling some to use up the annual Capital Gains Allowance. However, there are many other good reasons why you might wish to consider holding on to the assets: don’t let the tax tail wag the investment dog! Please speak to an IFA if you need investment advice. If you need to realise multiple assets in the near future (perhaps to fund some building work or a new home) , consider staggering the disposals so that they benefit from two years’ worth of personal allowances. If you are married or in a civil partnership, there may be other strategies to adopt in order to reduce CGT.
Tax Free Dividends The tax free dividend allowance remains at £2,000 for 2020/21.
EIS /SEIS Consider investing in an Enterprise Investment Scheme (“EIS”) or a Seed EIS. In some circumstances, such investments can yield very substantial tax benefits. There are drawbacks to consider – your investment can be at risk, and the funds must remain in the investment for a minimum of three years. This sort of investment must absolutely be made with the assistance of an Independent Financial Adviser (IFA).
Gift Aid Make a charitable donation under Gift Aid. For higher rate taxpayers, this can yield an extra tax refund for you, as well as increasing the value of the gift to the charity.
Inheritance Tax If your estate faces a potentially high Inheritance Tax liability, using the annual gift allowance of £3,000 is worth considering. This can be doubled if it was not used in the previous tax year.
Company Cars The whole landscape for taxing company cars will change in April 2020. Electric cars will be particularly attractive, since there will be no Benefit in Kind Tax to pay in the year ended 05/04/21, rising to a nominal sum over the next two years. For other cars, the BIK tax rates are generally still very prohibitive from a tax perspective. Often just the tax a person pays on having a company could almost pay for the car itself.
Landlords Tax relief on mortgage interest for rental properties will reduce again for the last time to 20% for higher rate tax payers in 2020/21. These changes can have a serious impact on the financial viability of investing in property so if necessary, evaluate your position as a landlord.
Marriage Allowance Where one spouse or civil partner earns less than the personal allowance, and the other spouse or civil partner earns less than the higher rate threshold, it is possible for £1,250 of their allowance to be transferred to the other. This can result in a tax saving of over £200 for a family (and this can be backdated to include previous years allowances).
Please note that as part of our tax return process we will check to see if you are eligible for this saving.
Tax Return Try and have your tax return completed as soon as possible after 6th April to ensure that you are fully aware of any tax liability arising on 31st January 2021. Early submission of the tax return often provides additional scope for tax planning and can potentially reduce or remove the need to make a second payment on account in July.
Earnings near or just over £100k
Your personal allowance is reduced or potentially totally removed once your income exceeds £100k. If you think your income is going to be just over £100k then there are strategies to adopt to reduce the impact of personal allowances. By paying some more into a pension fund or making a larger donation under Gift Aid, you may be able to drop below the £100k threshold.
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The Chancellor of the Exchequer will be proposing his first budget on 11 March 2020. Some of the proposals may impact on the advice above, so it is important to always check with us before undertaking any tax planning work.