Don’t wait until the last minute to use your tax allowances

close of a calculator with wooden blocks saying 'taxes' on an orange background

Don’t wait until the last minute to deal with your tax. Start planning how to use your allowances now, so you have enough time before the 5th April 2020 to take advantage of any that prove useful.

Now is the perfect time to get a head start on your tax planning resolutions to enhance your own, family’s or your business’s tax-efficient plans for the years ahead. In this article, we have set out some tax tips that you may find helpful.

Reviewing your tax affairs now will ensure that available reliefs and exemptions have been fully utilised, which could potentially help to reduce your tax bill. It is essential to make sure that you take the time to carry out a review of your tax and financial situation, as this will help identify any opportunities and allow you to take remedial action before it’s too late if necessary.

Here are our tips to help you get ahead on managing your tax affairs:

 

Pension contributions (spouses and children)

You may want to consider contributing up to £3,600 each year to a personal pension, self-invested personal pension, or stakeholder pension for your spouse or child. The government will even provide a basic rate income tax relief at, currently, 20% on your contribution. You can find out more about starting a pension for a child here.

 

Individual Savings Accounts (ISAs)

Ensure you are fully utilising your tax-efficient ISA allowance. The allowance for the tax year 2019/20 is £20,000 per person, and the Junior ISA allowance is £4,368 for children under 18.

 

Capital gains

You may be able to use the capital gains annual exemption of £12,000 (2019/20) to realise gains tax-free. It is worth noting that this allowance cannot be carried forward or transferred between spouses.

 

Pension contributions

Consider maximising your own pension contribution amount and therefore potentially your tax relief. Take full advantage of the annual allowance, which is £40,000 (tapered if you earn over £150,000) or the value of your total earnings, whichever is lower, by increasing your contributions.

You may also be able to carry forward unused annual allowances from the previous three years depending on your circumstances.

 

Remuneration strategy

If you are running your own company, it’s a good idea to determine your pay and benefits strategy. For the tax year 2019/20, the dividend nil-rate band remains at £2,000. It’s crucial to understand the tax implications of your chosen approach to salary, benefits, pensions and dividends.

 

Gifting

To help reduce your potential future Inheritance Tax bill consider utilising the annual Inheritance Tax exemption that allows you to give away £3,000 worth of gifts outside of your estate.

You can also carry this exemption forward for one year if you have not used it.

 

Transfer income-producing assets

Think about transferring income-producing assets between your registered civil partner or spouse to make use of the Income Tax personal allowance and lower Income Tax bands of the transferee.

 

Overpayment and capital loss claims

You can still submit claims for overpaid tax and capital loss claims for the 2015/16 year as long as you do it before 5 April 2020.  After this date claims from this time frame will be barred.

 

Landlords

For the tax year 2019/20, the restriction on the deductibility of mortgage interest and other finance costs increased to 75%. Consider taking steps sooner rather than later if you wish to mitigate the impact (such as incorporation, for example).

In the tax year 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

 

Further information

If you found this information useful, you may also want to check out the following:

 

MRA specialise in business solutions, and are Life Centred Business Consultants based in East Sussex we service clients across the South East, Sussex and Kent, including smaller towns such as Ashford, Battle, Bexhill, Bodiam, Brighton & Hove, Cranbrook, Crowborough, Eastbourne, Hailsham, Hastings, Heathfield, Herstmonceux, Lewes, Mayfield, Newhaven, Rye, Seaford, Sevenoaks, Tenterden, Tonbridge and Tunbridge Wells.

 

Sources:

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

https://www.gov.uk/individual-savings-accounts

https://www.gov.uk/junior-individual-savings-accounts

https://www.gov.uk/government/publications/capital-gains-tax-annual-exempt-amount-for-tax-year-2019-to-2020/capital-gains-tax-annual-exempt-amount-for-tax-year-2019-20

https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions

https://www.gov.uk/tax-on-dividends

https://www.gov.uk/inheritance-tax/gifts

https://www.gov.uk/capital-gains-tax/losses

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords