12 January 2018
Make tax efficiency your New Year resolution
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.
Read our round up of the latest tax rules for some useful planning points, to make you tax efficient in 2018…
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.
For those looking to do some inheritance tax (IHT) planning it would be a good time to review (or make) your Will in the light of the recent change in the IHT nil rate band.
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.
Planning point: 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 tax year, but then lapses if unused.
Planning point: Note also that for 40% higher rate taxpayers the net cost of saving £10,000 in a pension is only £6,000 but this higher rate relief may not last for ever.
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 and we can work with your solicitor to make sure your Will is tax efficient.
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 four 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.
Planning point: 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.
Whatever your New Year resolutions are, we can help you with your tax planning…
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.