New Year Resolutions to Save Tax
At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April.
An obvious tax planning point would be to maximise your ISA allowances for the 2017/18 tax year (currently £20,000 each).
You might also want to consider increasing your pension savings before 5 April 2018 as the unused annual pension allowance is lost after three years.
You may also wish to consider the merits of tax-advantaged investments such as Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) investments. Income tax relief is available on the amount invested at 30% for EIS and VCTs providing the investor pays an equivalent amount of income tax in the same year. You must seek advice from a financial adviser before making investment decisions.
For those looking to do some inheritance tax planning it would be a good time to review (or make) your Will after first having undertaken an Estate Planning review.
Passing on the Family Home
New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your Will.
From 6 April 2017 an additional nil rate band of £100,000 is now available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. This additional relief is however restricted If your assets exceed £2 million. The rules are fairly complicated but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.
What about downsizing to a smaller property?
The new inheritance tax relief for passing on the family home is protected even when you downsize to a smaller property.
For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and still get the inheritance tax relief!
Consider making regular gifts out of surplus income?
Whilst on the subject of inheritance tax planning why not consider setting up a standing order to family members? Such regular gifts can be outside of the scope of inheritance tax provided they are made out of surplus income and not out of capital. It would be necessary to demonstrate that you are left with sufficient income after tax and living expenses to maintain your normal lifestyle. Unlike the £3,000 annual inheritance tax allowance there is no monetary limit for regular gifts out of income, provided the conditions are satisfied.
Again we can review your personal circumstances to see if you are able to take advantage of this tax relief.
Tax relief for energy saving technology
For a number of years there has been a generous 100% tax break for businesses that install energy saving technology in their premises. This is in addition to the £200,000 annual investment allowance for plant and machinery.
The technology that qualifies for this 100% tax break includes energy efficient boilers and energy saving lighting systems. This is set out in the government's energy-saving technology list. The list is updated each year. It was announced in the Autumn Budget that new technologies were being added but also certain items such as Biomass fired warm air heaters would no longer qualify from 1 April 2018.
Note also that where the expenditure has the effect of creating or increasing a loss for corporation tax purposes, the company can obtain a repayable first year tax credit. This credit, based on the amount of the loss attributable to the energy-saving technology spend, reduces to 2/3 of the corporation tax rate from 1 April 2018. Thus the relief reduces from 19% to just 12.67% from 1 April 2018.
If you would like more information or talk to us about your tax affairs in general, please contact our Tax Partners, Steve Crompton or Chris Barrington on the details below:
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
direct dial: 01942 292505
mobile: 07730 436070