The fiscal year 2019-20 ends on 5 April 2020. If you would like to take advantage of any year end tax planning opportunities before the end of the tax year on 5th April, you have just a few weeks left to take action.
It may seem for some that the tax year is only just over as there is so much noise about tax around the 31 January self assessment tax return filing deadline. But the reality is that the tax year runs from 6 April to 5 April the following year. That means that if you want to talk advantage of the many tax planning opportunities available to you before the end of the 2019-20 tax year, the time to act is now.
Most of the strategies we mention below are in relation to personal tax planning for individuals, but if you run a profitable business, particularly an incorporated company, you should pay attention to additional tax planning opportunities for you before the end of your business tax year and in time for the fiscal year end. Certain opportunities are very much use it or lose it.
As always, if you’d like more specific planning around your own personal situation, please feel free to contact the IN TEAM who will be more than happy to help.
Please be aware that this article is written before the Spring Budget 2020 which is currently set for March 11 2020, and therefore some of this advice may be subject to change at that time. We will of course update all advice as soon as we know more.
Making the most of your tax allowances for Pensions, ISAs, CGT, IHT and Income Tax, is vital to ensuring your financial affairs are organised as efficiently as possible.
To make sure of this, it’s advisable to talk to your financial advisor as soon as possible so that any actions and/or transactions can be processed in good time before the financial year end.
We have outlined some of the most popular strategies below, and as always please don’t hesitate to CONTACT US should you have any questions, or if you would like an introduction to one of the team of Independent Financial Advisors at CULLEN WEALTH
ISA allowances are £20,000 per individual, thus allowing a couple to invest £40,000 between them.
The allowances for a Junior ISA / Child Trust Fund are £4,260 per child.
Bed and ISA
If you don’t have enough cash available right now to maximise your ISA contributions, but do have other investments which are in taxable investment accounts, then it is possible to do a “Bed and ISA”. The idea is simple: you sell your non-ISA investments and then use the proceeds to buy them back immediately, but this time within your ISA using your annual tax-free allowance, meaning the assets are out of reach of the taxman.
The capital gains tax allowance in 2019-20 is £12,000, up from the £11,700 available in 2018-19. This means that it is possible to generate capital gains of up to £12,000 in this fiscal year which will be exempt from capital gains tax. Fully utilising your CGT Allowance can assist you with building more of your taxable investments into tax efficient investments.
Remember, your CGT allowance is per individual, and is on a ‘use it or lose it’ basis – i.e. you can’t carry this year’s allowance over into the next financial year. However, if you dispose of a jointly owned asset, the capital gains allowance for each owner of the asset can be utilised before applying the tax to the remainder of the gain.
Any investment gains above this amount will be taxable, at either 10% or 20% dependent on your marginal rate of tax.
The only exception is people selling second properties, including buy-to-let investments. Capital gains on these investments will be charged at 18% for basic rate taxpayers, or 28% for higher and additional rate taxpayers.
There are BIG changes coming into play from April 2020 to the rules for landlords regarding the way capital gains tax relief is treated on residential properties. For full details on this and how it may impact you, read our article on the subject here:
The Annual Allowance is currently set at £40,000 per tax year, however your contribution cannot exceed 100% of your earnings unless you have unused relief from previous tax years.
There are some circumstances where an individual’s Annual Allowance will have been reduced to as little as £4,000 per tax year, so it is important to seek advice, as there are tax consequences if you exceed your Annual Allowance.
Making a pension contribution is an effective way of retaining some allowances and saving tax.
The lifetime pensions allowance is currently £1,030,000.
Don’t forget that you can make pension contributions for each of your children and/or grandchildren up to £3,600 gross per annum.
Pensions and Limited Companies
If you run a Limited Company and make employer pension contributions, you receive Corporation Tax and Employer National Insurance Tax relief on these contributions. So do consider whether you are able to make any additional lump sum deposits into your pension scheme to take advantage of these additional benefits.
Do note that contributions must not only arrive in your pension account before the fiscal year end, but also leave your business account before the end of your business’ accounting year if you are to take advantage of the Corporation Tax savings.
Income Tax Planning
The amount you can earn tax-free before you start paying income tax increases from the 2018-19 rate of £11,850 to £12,500.
A basic rate tax payer will pay 20% on taxable income between £12,501 and £50,000. This means it is possible to earn up to £50,000 before you start paying tax at a rate of 40%.
Where your earnings exceed £100,000, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. This means if you earn more than £123,700 you will lose your tax-free personal allowance.
Where your earnings exceed £150,000, the additional rate of income tax of 45% is charged on all earnings above £150,000.
These tax bands will be changing in the new financial year, so keep a look out for our separate article on this.
Income tax rates in 2019-20 at a glance
- Income up to £12,500 – 0% income tax. This is your personal tax-free allowance.
- Income between £12,501 and £50,000 – 20% income tax.
- Income between £50,001 and £150,000 – 40% income tax.
- Income above £150,001 – 45% income tax.
The tax free dividend allowance remains at £2,000, so if you don’t have other income you’ll be able to earn £14,500 free of income tax when taking into account your personal allowance of £12,500.
All income from further dividends are taxed at 7.5% within the basic rate band of tax, 32.5% within the higher rate, and 38.1% if you are an additional rate tax payer.
If you think you could remunerate yourself more tax efficiently to take advantage of these lower tax bands, then do contact us for further information and bespoke advice.
The Personal Savings Allowance
You might be able to reduce your tax bill further if you receive income from savings.
Basic rate taxpayers can still earn £1,000 from savings before they start paying income tax on savings income, higher rate taxpayers will only start paying tax on savings income over £500.
There is no savings allowance for additional rate taxpayers.
Inheritance Tax Planning
Each individual is entitled to a £3,000 annual exemption. It may be possible to carry forward any unused annual exemption from the previous tax year so for somebody who has made no gifts, they can make gifts of £6,000 within their annual exemptions now.
For more details on Inheritance tax planning, please see our article on this subject here:
Dependent on your own personal position there may be other tax planning opportunities open to you. At IN Accountancy we are not financial advisors, but we will be very happy to connect you with a qualified and independent financial advisor should you so wish.
And as always, if you any questions whatsoever please don’t hesitate to contact us – we will be happy to help.