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Category: Tax Planning

Get a business health check at the start of the tax year

Get a business health check at the start of the tax year

Using up personal allowances is not the only reason you should see your accountant at the start of the tax year, it is also the best time to get a health and wealth check for your business too.

The end of the tax year is the busiest time for your business and your accountant, meaning devoting time and effort to checking whether your business is on track is sadly lacking.

Take the time while you have the time

However, the complete opposite is the case at the start of the tax year, so now is the time to make the most of the chance to review your business strategy, cashflow and plans for the coming year to ensure your company has the best chance of success.

What can your accountant help you with?

Your accountant is perfectly placed to help you put an effective plan in place to give your business the boost it needs at the start of the tax year. He or she can help you with everything from saving tax and paying the right amount of tax, right the way through to helping you comply with relevant regulations and improving your cashflow.

Accessing funding

A good accountant can also help you access relevant funding – whether that is a grant that your business would qualify for or an investor that would help your business to grow.

Setting out an effective business plan at the beginning of your financial year is like creating a road map for the coming months, allowing you to follow that map to achieve your goals.

We can help your business run smoothly

When things get tough, your accountant is there to help you with everything from advice to reality checks so your business can continue to run smoothly.

If you want help to set your business on the right path for this tax year, then please get in touch and find out how we can help you.

May 9, 2022

Reclaim Married Couple’s Allowance

Reclaim Married Couple’s Allowance

Married Couple’s Allowance can be transferred between spouses and civil partners, and while 2m couples have claimed this since it was introduced back in 2015, there are many more people who are entitled to claim it.

Go back four years

The allowance, which is worth up to £1,220 for each year, can be reclaimed back for every year to the 2017/18 tax year right the way through to the 2021/22 tax year. For those entitled to the maximum amount, this could create a windfall of £4,880.

Claim it now

However, these payments need to be claimed before 5 April 2022. Married couples and those in civil partnerships can transfer 10% of their personal allowance to their spouse or partner if one is a non-taxpayer and the other is a basic-rate taxpayer. This could apply if one partner loses hours or sees a significant reduction in their salary due to reduced hours – entirely possible during the Covid-19 pandemic – retirement or a change of job. It also applies if someone takes a career or study break.

Who claims?

The lowest earning spouse or partner would make the claim for this transfer of personal allowance, and even if your spouse or civil partner has died since 5 April 2017, then the remaining spouse or partner can still claim this allowance. This is done via the income tax helpline. If the claim is made via the online service, they will automatically roll on to the following years.

But if you make the claim via a self-assessment, this does not automatically roll on. If a couple no longer qualifies, then they need to cancel their claim.

We can help you reclaim what is due

If you think you are entitled to the Married Couple’s Allowance or any other benefit, such as the Blind Person’s Allowance, Tax Relief for Employment Expenses – which includes the £6 per week allowance for employees required to work from home in 2020/21 and 2021/22 – and could benefit from going back up to four years with your claim, then please contact us for more information.

April 4, 2022

End of year tax planning – what you need to consider

End of year tax planning – what you need to consider

The new tax year on April 6 is accelerating quickly towards us, and now is the time to make sure that any last-minute allowances you may not have made the most of in the 2021/22 tax year are mopped up.

There are plenty of allowances that have a time limit on each tax year, and if you can use these last few days to maximise the benefits, then it would be a good deed done.

Individual Savings Account (ISA) Allowance

Each year, we can put up to £20,000 into an ISA, and if you have not put the full amount into your ISA for this year, then consider adding any additional funds to it before April 5.

Putting your savings and investments into an ISA wrapper allows the funds to grow free of tax, and when you take those funds out at the other end, you don’t pay any tax on them then either. You can spread this across a number of different types of ISAs – for example a cash ISA, Stocks and Shares ISA, Innovative Finance ISA, which is peer-to-peer lending, or a Lifetime ISA (although you can only invest £4,000 in this type as a maximum, which would leave you £16,000 of your allowance to invest elsewhere).

If you fail to use your full ISA allowance within the tax year, then you will lose it once we hit April 6, so make sure you maximise this tax benefit.

Avoiding a 60% effective tax rate for higher earners

Once you reach £100,000 of earnings, you begin to lose your personal allowance at a rate of £1 for every £2 of earnings above this threshold. This means that by the time you reach £125,140 you no longer have a personal allowance. Between £100,000 and £125,140, your effective tax rate is 60%.

However, you can reduce the impact of this by making payments into your pension, or by donating money and benefiting from Gift Aid on the payments. Pension contributions and Gift Aid payments are made from gross income, which means you reduce the amount of taxable income you have. You cannot put more than £40,000 into your pension each year and receive tax relief, and you cannot reclaim more in tax in a single year than you would have paid.

This annual allowance as it is known will also reduce by £1 for every £2 earned above £240,000 and will stop reducing at £312,000 – leaving everyone with a minimum annual allowance of £4,000.

Carry forward

If you have any unused allowance from any of the three previous tax years, then you can carry this forward for one year to help you reduce your tax liabilities and maximise your pension contributions.

There are a few caveats to this, including:

  • You must have been in a registered pension scheme for each of these previous three years.
  • You must have already used all your allowance for the current tax year.
  • The carried forward annual allowance from the first year must be used first.
  • The amount you can carry forward may be subject to the tapered allowance if your earnings were high enough for this to apply in any of the previous three years.

Taking more than your tax-free lump sum out of a money-purchase pension scheme will also mean your annual allowance is reduced to £4,000.

However, if you have any annual allowance available from the three previous tax years and have used your full allowance for the current tax year, then this is another way you can reduce your taxable income and put extra into your pension pot. But make sure you remain within the Lifetime Allowance, which is currently set at £1,073,100.

Dividend Income

If you take dividends from your company, then you can take up to £2,000 each year at 0% tax, but if you miss this within a tax year, it is not possible to roll this over to the next year. Any dividend income after this between £12,570 and £50,270 is subject to 7.5% tax up to April 5 and 8.25% from April 6 – due to the addition of the equivalent of the 1.25% Health and Social Care Levy – so if you can bring any dividend payments into the current tax year, you may be able to avoid the additional tax.

Corporation Tax

The Corporation Tax rate is set to increase from 1 April 2023, and while this is a year away, it makes sense to plan ahead to make sure you make the most of the lower rate of 19% for the coming year.

Companies with profits between £50,000 and £250,000 will continue to pay corporation tax at 19% even after 1 April 2023, but companies with profits above this will face a tapered rate up to 25%.

For this reason, it would be wise to plan ahead for the next trading year to consider how you may be able to effectively mitigate this tax. But it is not something you should do without expert advice.

Contact us

If you are interested in benefiting from either personal or business tax advice, then please contact us and we will be happy to help you make the most of your tax breaks.

April 1, 2022

IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax

IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax

Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.

HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.

Transfer of allowances

Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.

The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.

However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.

You can mitigate this tax

Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.

So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.

Ways to reduce your IHT liability

There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.

You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.

You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.

If you die within this seven-year period, a tapered amount of IHT would be applied.

We can help you mitigate IHT

There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.

March 14, 2022

NI to increase by 1.25% this April to fund the Health and Care Levy – what you can do about it

NI to increase by 1.25% this April to fund the Health and Care Levy – what you can do about it

The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.

Costly increase when finances are being squeezed

The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.

Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.

What can you do?

Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.

Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.

While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.

Dealing with a benefit in kind

For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.

There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.

While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.

Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.

Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.

Contact us

If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.

March 1, 2022

Plan ahead for increases in the dividend tax rates

Plan ahead for increases in the dividend tax rates

As part of the Government’s funding strategy for health and social care, the dividend tax rates are to be increased from April 2022, alongside the temporary increases in National Insurance, and, from April 2023, the introduction of the Health and Social Care Levy. The increases in the dividend tax rates will affect you if you operate your business through a personal or family company and extract profits in the form of dividends. It will also affect you if you receive dividends from investments in shares.

Dividend tax rates from April 2022

The dividend tax rates are to increase by 1.25% from 6 April 2022. Once the dividend allowance (currently set at £2,000) and the personal allowance have been utilised, dividends are currently taxed at 7.5% where they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% where they fall within the additional rate band.

Where the strategy is to extract profits in the form of a small salary plus dividends, typically little or no National Insurance is payable. To ensure that those extracting profits as dividends contribute towards the cost of social care, from 6 April 2022, the dividend tax rates are increased by 1.25%, in line with the temporary increases in National Insurance contributions and the rate of the Health and Social Care Levy. From 6 April 2022, once the dividend allowance and the personal allowance have been used up, dividends will be taxed at 8.75% where they fall within the basic rate band, at 33.75% where they fall within the higher rate band, and at 39.35% where they fall within the additional rate band.

Plan ahead for the increases

As the increases in the dividend rates of tax do not take effect until 6 April 2022, you have time to plan ahead. If you have sufficient retained profits, you may want to consider extracting further profits as dividends in 2021/22, rather than waiting until after 6 April 2022. This will enable you to take advantage of the current, lower, rates of dividend tax. This is likely to be advantageous if you have not used up all of your basic rate band for 2021/22. If you have an alphabet share structure, dividends can be tailored to take advantage of any unused dividend allowances and basic rate bands of other family shareholders.

In deciding whether to extract additional dividends in 2021/22, you will, however, need to take account of your marginal rate of tax. If taking additional dividends now means that they will be taxed at the upper dividend rate of 32.5%, but taking those dividends in 2022/23 would mean that they will fall within the basic rate band, it will be better to take them in 2022/23 despite the rate increase as they will be taxed at 8.75% rather than 32.5%.

Speak to us

We can help you formulate a tax-efficient profit extraction policy for your business. Please get in touch.

October 19, 2021

Claim relief for shares of negligible value

Claim relief for shares of negligible value

If you have some shares that have become worthless, you can make a negligible value claim. This will allow you to set the associated loss against any chargeable gains that you make in the same, or a later, tax year, potentially reducing the amount of capital gains tax that you pay.

Making a claim

A claim can be made either in your self-assessment tax return or by writing to HMRC.

If you are making a claim in respect of unquoted shares, you will need to provide the following information in support of your claim:

  • a statement of affairs for the company and any subsidiaries;
  • a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
  • details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
  • evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If your claim is in respect of shares in a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.

For quoted shares, HMRC produce a list of shares that they accept being of negligible value.

Talk to us

Talk to us to find out how you can benefit from making a negligible value claim for shares that have become worthless.

June 14, 2021

Family companies and the optimal salary for 2021/22

Family companies and the optimal salary for 2021/22

If you run your business as a personal or family company, you will need to decide how best to extract profits for your personal use. A typical tax-efficient strategy is to pay yourself a small salary and then extract any further profits as dividends. Where this approach is adopted, you will need to determine your optimal salary level of 2021/22.

Benefits of paying a salary

Unless you already have the 35 qualifying years needed for the full single-tier state pension when you reach state pension age, paying yourself a salary that is at least equal to the lower earnings limit for Class 1 National Insurance purposes (set at £6,240 for 2021/22) will ensure that the year is a qualifying year for state pension and contributory benefit purposes. A further benefit of this approach is that employee contributions between the lower earnings limit and the primary threshold (set at £9,568 for 2021/22) are payable at a zero rate (although employer contributions are payable on earnings in excess of the secondary threshold (set at £8,840 for 2021/22)).

Determining the optimal salary level

The optimal salary level (from a tax and National Insurance perspective) for 2021/22 will depend on whether your personal allowance remains available, and also on whether your company is able to claim the National Insurance Employment Allowance. The Employment Allowance is set against your employer’s Class 1 National Insurance liability.

The Employment Allowance is not available to companies where the sole employee is also a director. This means that if you operate as a personal company where you are the only employee and director, you will be unable to claim the allowance. However, if you operate as a family company and have more than one employee (or the only employee is not also a director), you should be able to claim the allowance. The allowance is set at £4,000 for 2021/22. It is not available where the Class 1 National Insurance bill for 2020/21 was £100,000 or more.

Optimal salary where the Employment Allowance is unavailable

If you are operating a personal company or if the Employment Allowance is otherwise unavailable, assuming that you have not used your personal allowance elsewhere, your optimal salary for 2021/22 is one equal to the primary threshold of £9,568. Remember, that as a director, you have an annual earnings period for National Insurance purposes. However, if you opt to pay yourself a monthly salary, the equivalent is £797 per month.

As the secondary threshold for 2021/22 is lower than the primary threshold, employer’s National Insurance contributions will be payable to the extent that your salary exceeds £8,840. If you pay yourself a salary of £9,568 for 2021/22, your company will need to pay employer’s National Insurance contributions on that salary of £100.46 (13.8% (£9,568 – £8,840)).

Although it is possible to pay a salary equal to the secondary threshold of £8,840 free of tax and National Insurance, it is worthwhile paying a higher salary of £9,568. The salary and the associated employer’s National Insurance contributions are deductible in calculating your company’s taxable profits for corporation tax purposes. As the rate of corporation tax at 19% is higher than the rate of employer’s National Insurance at 13.8%, the corporation tax relief obtained on the higher salary outweighs the cost of the employer’s National Insurance. However, once your salary exceeds the primary threshold of £9,568, you will need to pay primary contributions on the excess at the rate of 12%. As the combined National Insurance hit at 25.8% outweighs the rate of corporation tax relief (at 19%), this is not worthwhile.

Optimal salary where the Employment Allowance is available

The Employment Allowance reduces your employer’s Class 1 National Insurance bill by up to £4,000. Where this is available, your optimal salary for 2021/22 is one equal to your personal allowance. This will normally be £12,570.

As the Employment Allowance will offset any employer’s Class 1 National Insurance contributions that would otherwise be payable to the extent that your salary exceeds £8,840, you will not need to pay any tax or National Insurance until your salary level reaches the primary threshold of £9,568. Once this level is reached, it is worth paying additional salary of £3,002 for the year to take your salary up to the level of the personal allowance of £12,570. Although you will pay employee’s National Insurance contributions of £360.24 (£3,002 @ 12%) on the additional salary, as the salary is deductible for corporation tax purposes, you will reduce the corporation tax payable by your company by £570.38 (£3,002 @ 19%), delivering a net saving of £210.14.

However, once your salary exceeds the personal allowance of £12,570, tax will also be payable at the basic rate of 20%, meaning the pendulum swings the other way and the combined tax and employee’s National Insurance payable on any further salary will outweigh the associated corporation tax deduction.

Get in touch

Your optimal salary will depend on your individual circumstances. We can help you decide on your 2021/22 salary level.

May 10, 2021

Extracting funds from a family company without retained profits

Extracting funds from a family company without retained profits

Many family companies have struggled as a result of the COVID-19 pandemic and may no longer have any retained profits. Where this is the case, they may need to rethink how they extract funds from their company to meet their personal bills.

Dividend problem

A popular and tax-efficient strategy is to pay family members a salary equal to the primary threshold, set at £9,500 for 2020/21, or, if the employment allowance is available, a salary equal to the personal allowance of £12,500, and to extract further profits as dividends.

Requirement to pay dividends from retained profits

Under company law, dividends can only be paid from retained profits. This means that if a company lacks sufficient retained profits to pay a proposed dividend, they will not be able to pay that dividend legally. The ability to pay a dividend is constrained by the available retained profits.

Dividends must also be paid in proportion to shareholdings; however, the use of an alphabet share structure can provide flexibility.

Other options

Despite not having any retained profits, your company may have money in the bank. This may provide options for taking funds from the company where dividends are not an option.

Unlike dividends, salaries and bonus payments can be made where the company lacks profits, even if this results in a loss. Funds can also be extracted in the form of benefits in kind or, if the business is run from home, rent.

This will not always be ideal, from a tax perspective, but may be necessary. However, the directors must be wary of inadvertently trading while insolvent.

The company could also consider making a loan to the director. This can be a useful short-term option and it is possible for a director to borrow up to £10,000 for up to 21 months tax-free. However, there will be tax implications if the loan remains outstanding nine months and one day after the end of the accounting period in which it was made.

Talk to us

We can discuss ways to navigate the COVID-19 pandemic and extract funds from an unprofitable family company.

September 30, 2020

Optimal salary for 2020/21

Optimal salary for 2020/21

A popular profit extraction strategy for personal and family companies is to pay a small salary and to extract further profits as dividends. With new National Insurance thresholds applying for 2020/21, what is the optimal salary for the new tax year?

Starting point – what can be paid free of tax and National Insurance?

Assuming the director has the full personal allowance for 2020/21 of £12,500 available, the optimal salary will be dictated by National Insurance considerations. Unless the director already has the 35 qualifying years needed to secure a full single tier state pension, it is worthwhile paying a salary at least equal to the lower earnings limit, set at £6,240 for 2020/21, to ensure that the year counts for state pension and contributory benefits purposes.

For 2020/21, the point at which employer contributions start (the secondary threshold) is lower than the point at which employee contributions start (the primary threshold). The secondary threshold is set at £8,788 for 2020/21 (£169 per week; £732 per month), whereas the primary threshold is set at £9,500 (£183 per month; £792 per month).

Assuming that the director is over the age of 21 and the employment allowance is not available (as is the case where the sole employee is also a director), the maximum salary that can be paid free of tax and National Insurance is £8,788 – equal to the secondary threshold.

Employer contributions for under 21s do not start until the upper secondary threshold for under 21s is reached (set at £50,000 for 2020/21). Thus, where the director is under 21, a salary equal to the primary threshold of £9,500 per year can be paid free of tax and National Insurance. This is also the case if the employment allowance is available (for example, in a family company scenario).

Is it beneficial to pay a higher salary?

Salary costs and any associated National Insurance are deductible in computing the company’s profits for corporation tax purposes. Thus, if the corporation tax deduction (at 19%) is more than any National Insurance or tax paid on the additional salary, paying a higher salary can be worthwhile.

If the director is 21 or over and the employment allowance is not available, it is worthwhile paying a salary up to the primary threshold of £9,500. On earnings between £8,788 and £9,500, employer National Insurance contributions of 13.8% are due, but this is outweighed by the corporation tax deduction on the additional salary and the associated employer’s National Insurance. However, once the primary threshold is reached, both employer and employee contributions are due (at 13.8% and 12% respectively) on further earnings. As these outweigh the corporation tax deduction, it is not worth paying a salary above £9,500 a year. So, where the director is aged 21 or over and the employment allowance is not available, the optimal salary for 2020/21 is £9,500 a year (£792 per month).

If the director is under 21 or the employment allowance is available, as seen above, a salary of £9,500 (equal to the primary threshold) can be paid free of tax and National Insurance. Above this level, primary National Insurance contributions are payable at 12% until the personal allowance of £12,500 is reached. As the associated corporation tax deduction is higher than the National Insurance cost, it is worth paying a salary of £12,500. Above this, however, income tax at 20% is also payable, outweighing the corporation tax deduction. Consequently, in these circumstances, the optimal salary is equal to the personal allowance of £12,500 a year.

Determine your optimal salary

As shown above, the optimal salary depends on personal circumstances. Speak to us for help in crunching the number and determining the optimal salary for your situation.

April 8, 2020

Entrepreneurs’ relief – reduction in lifetime limit

Entrepreneurs’ relief – reduction in lifetime limit

Prior to the Budget, there had been much speculation that that entrepreneurs’ relief would be abolished. In the event it stayed – albeit with the new name of ‘Business Asset Disposal Relief’ – and a much-reduced lifetime limit.

New £1 million lifetime limit

The lifetime limit is reduced from £10 million to £1 million with immediate effect for disposal on or after 11 March 2020 (Budget Day). Disposals prior to Budget day that qualified for entrepreneurs’ relief count towards the new £1 million limit, and where this has already been reached, the relief will not be forthcoming on future disposals, even if the qualifying conditions are met.

Anti-forestalling

Anti-forestalling measures were announced which may negate protective action taken ahead of the Budget in an attempt to preserve availability of the relief as it applied at that time.

Where arrangements were entered into before Budget day, the old £10 million lifetime limit will only apply if:

  • the parties to the contract are able to demonstrate that they did not enter into the contract for the purposes of obtaining a tax advantage by virtue of the capital gains tax rules setting the contract date as the date of the disposal; and
  • where the parties to the contract are connected, the contract was entered into for wholly commercial reasons.

If the above conditions are not met, the reduced lifetime allowance of £1 million applies.

Anti-forestalling rules also apply in certain circumstances where between 6 April 2019 and 11 March 2020, shares were exchanged for those in another company, and both companies are owned or controlled by substantially the same person.

Plan ahead

If you are planning on disposing of business assets or shares in a personal company, it is important to plan ahead to maximise relief. We can help you. Remember, spouses and civil partners each have their own lifetime limit.

Guidance on the changes is available on the Gov.uk website.

March 16, 2020

Using capital losses

Using capital losses

Where capital gains tax would be payable on a gain made on the disposal of an asset, if the disposal results in a loss, the loss is an allowable loss for capital gains tax purposes.

Gains in the same tax year

In the event that capital gains are made in the same tax year as an allowable loss, the loss is first set against those gains. This may mean that the annual exempt amount is lost as this is set against net gains for the tax year (chargeable gains less allowable losses).

Carry forward unused losses

If there are no gains in the tax year, or allowable losses exceed chargeable gains, the unused losses can be carried forward to a future tax year.

There is no requirement to use them against the first available chargeable gains; rather you can choose when to use them. And unlike the set-off against gains of the same year, they can be set against net gains to the extent that they exceed the annual exempt amount, so that this is not wasted. Any losses remaining unused can be carried forward to a future tax year.

Report the loss

Remember to report capital losses to HMRC. This can be done on your tax return, or by writing to HMRC if you do not need to complete a tax return. You have four years from the end of the tax year in which to claim your losses. We can help you plan your disposals in a tax-efficient manner.

February 7, 2020

Personal allowances – use them or lose them

Personal allowances – use them or lose them

With the end of the 2019/20 tax year approaching, now is a good time to review your available personal allowances for 2019/20 and make sure that they are not wasted.

Personal allowance

For 2019/20, the personal allowance is £12,500. However, where income is more than £100,000, the allowance is reduced by £1 for every £2 by which income exceeds £100,000. This means that individuals with income of £125,000 or more in 2019/20 do not have a personal allowance. If your income is between £100,000 and £125,000, you will receive a reduced personal allowance.

At the lower end of the income scale, if you are married or in a civil partnership and if you are not able to use all of your personal allowance or your partner is unable to use all of their personal allowance, you can claim the marriage allowance. This works by allowing the person who is unable to use all of their allowance to transfer 10% of their personal allowance — £1,250 for 2019/20 – to their spouse or civil partner. However, this is only allowed if the recipient is a basic rate taxpayer. The marriage allowance is worth £250 to a couple for 2019/20. It can be claimed online.

At the other end of the scale, taxpayers whose income exceeds £100,000 could consider taking steps to reduce their income to below £100,000 to preserve their full personal allowance. Options include making pension contributions or gift aid donations or delaying taking salary or dividends until after 5 April 2020.

Dividend allowance

All individuals, regardless of the rate at which they pay tax, are entitled to a dividend allowance of £2,000 for 2019/20. In a family company scenario, where family members have not yet used their allowance, paying dividends by 5 April 2020 to mop up the allowances can be a tax-efficient way to extract profits. The use of an alphabet share structure will enable dividends to be tailored to the circumstances of the recipient.

Pensions annual allowance

Making contributions to a registered pension scheme can be tax efficient. You can make pension contributions to the higher of 100% of your earnings and £3,600 (gross), as long as you have sufficient annual allowance available. The annual allowance is set at £40,000 for 2019/20, but is reduced for high earners. If you have already accessed a money purchase pension, you have a reduced allowance of £4,000.

The annual allowance can be carried forwarded for up to three years. However, before using brought forward allowances (earliest year first), you must use the allowance for the current year. Any allowances unused for 2016/17 will be lost if they are not used by 5 April 2020.

Capital gains tax annual exempt amount

Capital gains tax is only payable where net gains and losses for the tax year exceed the annual exempt amount. This is set at £12,000 for 2019/20. Spouses and civil partners have their own annual exempt amount.

Where a disposal is on the cards which will give rise to a capital gain, if the annual exempt amount for 2019/20 has not been used up yet, consider making the disposal before 6 April 2020 to utilise this. Remember, where a spouse or civil partner has an unused exempt amount, assets can be transferred between them on a no gain/no loss basis, making it possible to make use of their annual exempt amount too.

Inheritance tax annual exemption

The inheritance tax annual exemption allows you to give away £3,000 each year without the gift counting as part of your estate for inheritance tax purposes. If it is not used, it can be carried forward to the next tax year, but is then lost. If you do not use your exemption for 2018/19 by 5 April 2020, you will lose it. There are also various other gifts that you can make IHT-free each tax year.

Act now

Why not speak to us to find out what action you need to take to make sure your allowances are not wasted.

February 3, 2020