The 12 Personal Tax days of Christmas! - our 2019 tax planning tips

Benjamin Franklin is quoted as saying that there are only two certainties in life: death and taxes. In these politically turbulent times, the quote seems to be particularly apposite. Whilst tax is unlikely to factor highly on a wish list of things to do at Christmas, the break is often a good time to review your tax situation to see if there are any matters which you should address to mitigate future liabilities.

1. Self-Assessment Return

The deadline for online filing of the 2018 Self-Assessment Return is 31 January 2019. If you have not already done this, it might be a good idea to do so. Missing the deadline will result in penalties.

2. Tax planning for Pensions

Is your pension provision sufficient? Are you taking full advantage of your annual allowance? Currently this is £40,000 per tax year unless your income is over £150,000, in which case the allowance is tapered. If you have unused relief from the previous three tax years you can use this starting with the earliest year first (N.B. to tap in to the brought forward relief you have to pay more than the annual allowance for 2018/19).

3. ISA's

Have you utilised your full ISA allowance for 2018/19? For 2018/19 you can save a maximum of £20,000 and this can be in a cash ISA, a stock and shares ISA, a Help to Buy ISA, an Innovative Finance ISA, Lifetime ISA or any combination of each of them.

4. Dividends

If you own your own company, have you done your dividend planning? The dividend tax means that the first £2,000 of dividends in a tax year are free of tax. However, dividends in excess of £2,000 are subject to an additional tax charge of 7.5%.

If you are unsure on your tax strategies then we can advise on the best mix of salary and dividends.

5. Equalising of income

Income tax advantages (and in certain cases Child Benefit advantages) can accrue to a married couple (or a couple in civil partnership) by transferring income producing assets between parties.

If possible it is generally advisable to equalise the income of couples so full use is made of personal allowances, basic rate bands and avoiding losing personal allowances, if an individual's income exceeds £100,000.

In the case of Child Benefit, the benefit is reduced if one partner's income exceeds £50,000.

6. Buy to let

Those landlords who have funded their residential property portfolio by borrowing have already suffered from some restriction to their interest relief. In 2018/19 50% of the interest is not eligible for higher rate relief (i.e. basic rate only). In 2019/20, 75% of the interest charge will not be entitled to higher rate relief.

This restriction will have a major effect on the taxation of substantial property portfolios, which have been financed by loans. Some landlords may wish to reduce their borrowings by selling property. This , in itself, will have capital gains tax implications. Landlords should review their tax position on a regular basis as this could have implications for future investment decisions.

7. Capital Gains Tax

The unused capital gains tax allowance (£11,700) cannot be carried forward, so if you have assets which are standing at a gain it is worth considering selling some and reinvesting in order to utilise your allowance.

The capital gains tax rate of 20% (10% for basic rate taxpayers) for all assets other than residential property makes investing for capital growth attractive from a taxation perspective. The capital gains tax rate on residential properties is 28% (18% for basic rate taxpayers)

Do you need to consider strategies on how you invest your surplus assets to take advantage of comparatively low capital gains tax rates?

8. Wills

Making a will is a job that many people put off and as a consequence approximately one third of us die without having written a will. If you have children under 18 it is very important to have a will to name a legal guardian.

Even if your assets are not substantial and your wishes are straightforward it is still advisable to make a will, as the practicalities of dealing with the Estate are much easier if there is a valid will.

Do not put it off any longer!

9. IHT Annual Gifts

As it is the season of goodwill you may want to make some gifts! The annual tax free allowance is only £3,000 so you can make gifts of at least this amount each year. Any unused allowance can be carried forward for just one year.

The IHT nil rate band is £325,000 but gifts made outside the seven years prior to death are ignored. If you have substantial assets and you are concerned about IHT you may want to make large gifts and perhaps take out insurance to cover the eventuality of dying within seven years.

From 2017/18 the nil rate band was enhanced if you have a house and are passing some of your assets to direct descendants.

The details of this relief are extremely complex. It should be borne in mind that if the value of your estate exceeds £2 million the relief is liable to reduction.

10. IHT Gifts out of Income

One of the reliefs that is often forgotten is that regular gifts out of surplus income are totally exempt from IHT. If you have surplus income, which you wish to gift, making a gift to someone at Christmas or New Year or on a regular basis is a good way to set up a pattern.

It is always a good idea to keep very good records of such gifts (including proof that they came out of surplus income) so that the relief can be claimed on death.

11. Charitable Gifts

Keeping up with the theme of giving, charitable gifts offer tax benefits.

Gift aid relief means that the charity benefits from a tax reclaim but higher rate taxpayers can obtain a reduction of tax. In certain cases the making of a charitable gift can bring even more dramatic tax savings (for instance if you have made a chargeable event gain which is subject to higher rate tax).

12. Leaving the UK

If you are considering emigrating, for whatever reason, do not assume that you will immediately become not liable to UK tax.

There are statutory rules which determine your residence status. Also note that non-residents are now liable to tax on UK residential property and that any gains realised whilst overseas become chargeable to UK tax if you return to the UK within 5 years.

If all this tax advice is too much to take in at once, just top up your glass and maybe have another mince pie!

If we can help you or any of your contacts with tax planning strategies, please let us know. Happy Christmas!!