Year End Tax Planning

Tax Planning

With 5th April fast approaching, here are some tax planning suggestions you may like to consider before the end of the tax year.

Income Tax and Capital Gains

From 6th April the Personal Allowance increases to £11,850 and the Capital Gains annual exemption to £11,700. This provides opportunities to defer income and gains to the next tax year. On the downside, the dividend nil-rate band will reduce significantly to just £2,000, so owner-managed businesses should consider maximising this year’s allowance of £5,000 before 5th April.

Child Benefit and National Insurance

Households with at least one person earning more than £60,000 should still claim child benefit, but elect not to receive it to ensure that the non-working partner has a full National Insurance record.

Separation and Divorce

If you have separated in this tax year, steps should be taken, if possible, to make any division of assets before the tax year end. Capital Gains Tax does not apply to transfers between separated spouses in the year of permanent separation.

Enterprise Investment Scheme

The annual investment limit will increase on 6th April from £1m to £2m for individuals, so long as the amount above the first £1m is invested in “knowledge intensive companies”. Broadly speaking, these are companies whose operating costs are mainly in Research and Development and are either developing intellectual property with a view to exploiting it, or employing a high proportion of graduates on R & D projects.

The benefits of investment can be carried back a tax year so there may be scope for planning ahead of the introduction of the increased limit.

Second Homes and Buy-To-Let Properties

For higher and additional rate taxpayers the proportion of interest which can be set against income tax will reduce from 75% to 25% from 2018-19. The remainder will be eligible for basic rate relief at 20% only.

With effect from 6th April 2020, relief will be available at the basic rate only and because of the mechanics of the restriction on claiming the relief, taxpayers cannot include a deduction of the interest in calculating their total income. This could result in taxpayers unexpectedly crossing the income tax thresholds, potentially reducing the personal allowance, pension savings allowance and child benefit.

Accordingly, taxpayers need to consider debt reduction or refinancing. Incorporation should also be considered, although Capital Gains Tax and Stamp Duty may rule out this option.

Taxpayers who retain their buy-to-let properties should consider whether it would be advantageous to change the beneficial ownership of the property to a spouse, where he or she is a basic rate taxpayer, or where such a change would safeguard personal tax reliefs.

If you like to discuss your situation or for further information please contact our tax team.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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