Mortgage Winter Newsletter 2020

The Financial Advice Team Discusses


End of tax year financial checkup

Those investing or with pensions invested will have seen some very positive returns as worldwide markets. However, an absence of tax-planning can mean you pay more tax on those gains than is necessary. There is still time before the end of this tax year, 5th April 2020, to take advantage of these tax allowances.

We have outlined the allowances below, but to discuss your specific circumstances, please get in touch now. This will also ensure anything that needs to done is organised in time for the April deadline.

Personal Allowance

You can earn £12,500 in tax year 2019/20 before you pay any income tax. Most people know there is a tax free band but are paid through their employment and don’t need to think too much about it. However, if you have retired and draw income from a personal pension then you may want to ensure you have taken the full £12,500 in total income (including State pension).

Marriage Allowance

If one partner in a marriage or Civil Partnership earns below £12,500 per year and the other earns below £50,000 per year then it is possible to transfer up to 10% of the lower earner’s Personal Allowance (of £12,500). This transfer can be done for the previous tax year so get it done before the tax year-end in order to take advantage.

Pension Annual Allowance

Each year every individual UK tax resident under the age of 75 can contribute to a pension and receive tax relief. There are various rules concerning the amount you can contribute however, you should always use the allowance if possible – please contact us to discuss.

ISA Allowance

We all have an annual allowance of £20,000 which can be put into an ISA. This allowance cannot be carried forward into the next tax year, so if you have not utilised it, please get in touch to ensure it is completed by 5th April.

Capital Gains Tax (CGT) Allowance

The capital gains tax allowance is £12,000 for 2019/20. This allowance is often overlooked but can give significant benefits if you have investments and assets outside of Pensions or ISAs. You may want to consider realising some of the gains on non-ISA and non-Pension investments, in order to make use of this allowance. As with ISAs, CGT cannot be carried forward and must be used in each tax year.

There are a few other schemes promoted by HMRC, designed to encourage individuals to invest in the UK economy, with the incentive being a reduced tax bill.

Venture Capital Trust (VCT)

A VCT is a listed company in which you invest. Upon investment, you will receive a tax rebate of up to 30% of your investment from HMRC up to the level of income tax you paid in that tax year. The maximum you can invest in any one year is £200,000 and you must hold that investment for at least five years in order to benefit from the Income Tax relief. Dividends paid from a VCT are tax-free. Although the risks of a VCT investment need to be considered carefully, this is an effective way to reduce your tax bill.

Enterprise Investment Scheme (EIS)

The EIS is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax-efficient way to invest in small companies – up to £1,000,000 per year with Income Tax relief of 30% (again, restricted to a maximum of the value of income tax you pay). The minimum holding period is three years. EIS’s have other tax advantages - they are exempt from CGT, you can obtain loss relief against other investments if your EIS makes a loss, and you can defer CGT on other investments if you invest the gain in an EIS.

What makes it even more attractive is the ‘carry back’ facility where investments can be applied to the preceding tax year i.e. the investment is treated as if it is made in the previous tax-year and you get relief on the previous years’ Income Tax.

This is a very brief overview of some of the tax planning options available. To find out more please get in touch to discuss your alternatives and help you plan for a tax-efficient future.

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