Tax Actions to Consider Before the 5 April 2019
SAVE TAX BY 5 APRIL 2019!
The end of the 2018/19 tax year is nearly upon us, so here is HaesCooper’s final reminder as to the main tax savings issues to be considered and, where necessary, actions to be completed by 5 April 2019.
Any unused part of the £11,850 2018/19 personal allowance is lost as it cannot be carried forward. If your financial circumstances allow, try to make arrangements to increase your 2018/19 income. This is particularly applicable if you trade through a limited liability company, where you can control the timing of salary and dividend levels. With this being said; it is important to make sure the limited company has the money to pay the salary/dividend and in respect of the dividend, also make the necessary written record for the declaration of the dividend. Our experienced team can help you with all of this.
Do not forget that for if you are a non-tax payer for 2018/19 you can transfer £1,190 of your unused 2018/19 personal allowance to your spouse/civil partner (so long as they are a basic rate taxpayer). If you go ahead with this, you’ll need to make an election to HMRC before doing so -but you have 4 years in which to make the election, meaning you can still make the election going back to when this provision was first introduced namely for the tax year 2015/16.
Also, we advise taking the optimum benefit from the ability for a husband and wife or civil partners to arrange ownership of income producing investments/assets, on a tax neutral basis; resulting in each owner not only to benefit from the 2018/19 personal allowance but also the advantages of maximising the use of the 2018/19 20% base rate of Income Tax. Again, we at HaesCooper can help you with the detail on these arrangements – please feel free to contact us for more information.
Personal Pension Plans
It’s important to remember to review your personal pension plans to ensure you have maximised, within your personal financial budget, the amount of your 2018/19 pension plan payment; to take advantage of the Income Tax Relief available. In broad terms you can, for 2018/19, invest up to £40,000 in a personal pension plan with unused amounts for the last 3 years added on top. There is a lifetime allowance cap at £1.03m.
Also, for Stakeholder pensions, the sum of £2,880 can be paid for any individual, once HMRC has chipped in with the tax relief – this means that £3,600 is invested in the relevant person’s pension plan. There is no earnings requirement for these minimum Stakeholder pension payments.
If you need pension advice, please get in touch with our team on 01892 890099, who are able to introduce you to a suitably qualified Independent Financial Adviser (IFA).
Child Benefit Charge
An Income Tax charge will be made under the Self-Assessment process to claim back Child Benefit – if the annual net income of the claimant or the claimant’s spouse/civil partner exceeds £50,000. This charge is calculated as to 1% of the Child Benefit for every £100 over and above the £50,000 net income limit.
For example, a net income of £60,000 will mean all the Child Benefit will be lost, i.e. clawed back by the charge. However, note that it is the ‘net’ income – so it is your gross income less allowable items, such as payments to pension and/or gift aided payment to UK charities. If, for 2018/19 you are on the income margins for the Child Benefit Charge, you may want to consider making an allowable payment by 5 April 2019 to reduce your net income to below £50,000.
Individual Savings Account (ISA)
For the 2018/19 tax year, you can save up to £20,000 in a tax-free ISA, either as a cash account or share investment fund. It’s also important to remember that there are Junior ISAs for those under 18 years with the lower limit for 2018/19 of £4,260. The normal rule that income above £100pa arising from an investment made in the name of the child by its parent is treated as the parent’s taxable income does not apply to the Junior ISA investments.
Capital Gains Tax (CGT)
As the £11,700 2018/19 annual allowance cannot be carried forward, we advise, where and when possible, to ‘use it – do not lose it!’ Crystallising gains on shares so they’re covered by the annual allowance will no longer work; we therefore advise you to look at selling shares and making the gain to be covered by the annual allowance – where the shares can then be rebought within an ISA share fund (the buyer can also be a spouse/civil partner).
As for Income Tax for CGT; also look to take advantage of the tax neutral transactions of investments/assets between spouses/civil partners to ensure that each party uses their CGT annual allowance.
Property-Principal Private Residence (PPR)
From the 6th April 2020, owners of property that has at some point been their PPR; the final ownership period that automatically qualifies as exempt from CGT as a PPR – no matter what the then occupational circumstances are, will reduce from 18 to 9 months. The impact of this change will be felt mainly by owners who may have used the property as their PPR for only part of the total ownership period or for those who have perhaps bought a second property which they have claimed as their PPR.
Business Owners – Entrepreneurs’ relief (ER)
This is a reminder to all business owners that as from 6 April 2019 there is a change to the qualifying ownership period for assets qualifying for ER (10% CGT). You currently need to own such ER assets for a period of 12 months, but for disposals, after the 5 April 2019, the ownership period will be extended to 24 months. If you are currently negotiating a sell-out, then you need to consider the longer period of ownership for ER and if necessary, conclude the sale contract by the end of 5 April 2019.
Inheritance Tax (IHT)
An individual who is a resident in the UK can make a ‘total gift’ of £3,000 during a tax year and that £3,000 will be classed as exempt for IHT. However, for 2018/19 the £3,000 increases to £6,000 if the donor has not used his or her IHT annual gift exemption for the previous tax year. Remember; the IHT annual gift exemption is the aggregate of all gifts made during the tax year.
The IHT annual gift exemption allowance is in addition to the so-called small gifts made in consideration for a specified event such as weddings, civil partnerships and maintenance of family members. Also, if a pattern of gifts out of income i.e. financially affordable gifts is established, then those gifts are also treated as exempt gifts for IHT. Further details on these IHT exempt gifts can be obtained and bespoke IHT planning can be arranged on agreement with our specialist team at HaesCooper.
THE LOAN CHARGE
The 5 April 2019 is also an important date for people who have entered into the tax avoidance scheme (first started way back in 1999) under which a significant amount of their reward was paid to them, generally from an offshore company, in the form of a non-taxable loan. Subsequently, another tax avoidance scheme replaced the loan with a non-taxable annuity arrangement. HMRC have always stated that they don’t consider these tax avoidance schemes to work as they are ‘disguised employment income’ and fully taxable.
With this being said, the HMRC did not take the matters through the Courts but instead had the Finance Act 2017 (some 18 years after the schemes first started) to introduce what HMRC refer to as a ‘tax review’ legislation –what the rest of us call ‘retrospective legislation’ – previously unheard of in the tax adviser’s World!
We are not entering into the rights and wrongs of these tax avoidance schemes as suffice to say that we at HaesCooper never promoted or advised anybody to go into such tax avoidance schemes. However, along with the rest of the tax advisory/compliance profession, we are very concerned as to the introduction of retrospective tax laws.
For those who are involved with sorting out their ‘Loan Charge’ tax liability position – by the 5 April 2019 they should have contacted the HMRC with a view to settling their tax liability position. HMRC have stated that once persons have contacted, the original 5 April 2019 settlement deadline – under which penalties can be mitigated, has been extended to 31 August 2019.
We leave you below with an extract of the letter dated 7 March 2019 from the HMRC’s director general of customer strategy and tax design, Ruth Stanier, who wrote to the House of Commons Loan Charge All-Party Parliamentary Group.
The recently formed Loan Charge All Party Parliamentary Group (LCAPPG) has raised funds to force a judicial review of the retrospective nature of the Loan Charge tax rules. It is hoped that the Judicial Review will be heard in mid-2019 – so, watch this HaesCooper space on the matter of the introduction of the retrospective tax rules.
Please contact with our team by calling 01892 890099 or email firstname.lastname@example.org if you need advice or have any questions about any of the points raised in this article.
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