Year end capital tax planning

Have you used your 2018/19 £11,700 annual capital gains exemption? Consider selling shares where the gain is less than £11,700 before 6 April 2019. In addition, 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 income tax of up to 45% of the loss.

As far as Inheritance Tax (IHT) planning is concerned, all individuals have a £3,000 annual allowance which means that gifts up to that amount each year are exempt from IHT. If you have not used your £3,000 allowance from 2017/18 you can make gifts of up to £6,000 before 6 April 2019 without the gift being liable to IHT. Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured and we can assist you keeping the necessary documentation.

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 of 30% of the amount invested against your income 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 2018/19 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after 3 years. Note however that qualifying EIS and Seed EIS companies tend to be risky investments so professional investment advice should be taken.

A 30% income tax break is also available by investing in a Venture Capital Trust.

Your maximum annual investment in ISAs for 2018/19 is £20,000. Your investment needs to be made before 6 April 2019. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2018/19 tax year, you can invest £4,260 into a Junior ISA for any child under 18.

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, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. 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 but there continue to be rumours that this generous relief may be reduced in future.

For every £2 that your adjusted net income exceeds £100,000 the £11,850 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 £123,700 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. These rules changed from 6 April 2017 but employer pension contributions, bicycles, and employer provided childcare would continue to be tax effective.

Date  /  What’s Due

1/02

Corporation tax payment for year to 30/4/18 (unless quarterly instalments apply)

19/02

PAYE & NIC deductions, and CIS return and tax, for month to 5/02/19 (due 22/02 if you pay electronically)

1/03

Corporation tax payment for year to 31/5/18 (unless quarterly instalments apply)

2/03

5% penalty imposed on 2017/18 income tax, CGT, class 2 and 4 NIC still unpaid at this date

19/03

PAYE & NIC deductions, and CIS return and tax, for month to 5/03/19 (due 22/03 if you pay electronically)

Individual’s 2017/18 income tax, CGT, class 2 and 4 NIC liabilities should have been paid by 31 January 2019.

Note that if the balance is still unpaid at the end of February 2019 a 5% surcharge penalty is added in addition to the normal interest charge unless a time to pay arrangement has been agreed with HMRC.

HMRC have announced that the changes to the national insurance (NIC) treatment of termination payments and sporting testimonials have been delayed to 6 April 2020.

From 6 April 2020 Employer class 1A NIC will become payable on termination payments in excess of £30,000 and on sporting testimonials that exceed £100,000 (lifetime limit). The changes are intended to align the NIC treatment with the treatment for income tax although there is no NIC liability for the employee on such payments.

Whether or not the £30,000 exemption applies on termination of employment is a complex area and specialist advice should be obtained.

A further late change to the Finance Bill will re-introduce relief for acquired goodwill on the acquisition of businesses with eligible intellectual property from 1 April 2019.

This relief was withdrawn back in July 2015 and the restoration of relief for goodwill and customer-related assets is very welcome although the new form of relief will be more restricted.

The proposed new relief will be given at a fixed rate of 6.5% on up to 6 times the value of any qualifying intellectual property assets in the business being acquired. Qualifying assets will include patents, registered designs, copyright and design rights and plant breeders’ rights. This means that the qualifying costs will be written off over just over 15 years and will not follow the treatment in the company accounts as currently applies to other intangibles.