YEAR END PLANNING & USING YOUR ALLOWANCES
YEAR END CGT PLANNING
Have you used your 2019/20 £12,000 annual capital gains exemption? Consider selling shares where the gain is less than £12,000 before 6 April 2020.
Also, if you have any worthless shares consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances which could save tax of up to 45% of the loss.
PENSION PLANNING BEFORE THE END OF THE TAX YEAR
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer.
Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence the unused pension allowance for 2016/17 will lapse on 5 April 2020. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000.
HAVE YOU USED YOUR 2019/20 ISA ALLOWANCE?
Your maximum annual investment in ISAs for 2019/20 is £20,000. Your investment needs to be made before 6 April 2020. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2019/20 tax year, you can invest £4,368 into a Junior ISA for any child under 18.
DON’T LOSE YOUR PERSONAL ALLOWANCE!
For every £2 that your adjusted net income exceeds £100,000 the £12,500 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.
The restriction applies between £100,000 and £125,000 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax-free benefit in kind such as an additional pension contribution.
CONSIDER OTHER TAX EFFICIENT INVESTMENTS
If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as the ability to defer capital gains tax (CGT) until the shares are sold.
An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2019/20 capital gains. Shares in EIS and Seed EIS companies are risky investments and you should seek specialist advice before investing.
30% income tax relief is also available by investing in a Venture Capital Trust or by investing in a qualifying Social Enterprise.
BUY NEW EQUIPMENT BEFORE 6 APRIL?
Your business year-end, not 5 April, is relevant for capital allowances purposes. If however you are running a business and making up accounts to 31 March or 5 April you should consider buying plant and machinery to take advantage of the £1 million Annual Investment Allowance (AIA).
The AIA provides a 100% tax write-off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems.
AIA does not apply to motor cars (vans and other commercial vehicles aren’t considered motor cars) but there is a special 100% tax relief if you buy a new car that emits no more than 50g CO2 per kilometre.