Edwards Greene Tax Tips 2020

for the company or employed by it, you should both qualify for business asset disposal relief (formerly entrepreneurs’ relief) on any gains made when the company is sold. This relief applies a reduced rate of CGT of 10% to the first £1 million of gains made on all qualifying assets during each person’s lifetime. Savings and investment – making the most of your money 9 Contribute up to £9,000 into your child’s Junior ISA. The fund builds up free of tax on investment income and capital gains until your child reaches 18, when the funds can either be withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to your child’s Junior ISA, as long as the £9,000 limit for 2020/21 is not breached. 10 Make the best use of tax-free savings and dividend allowances. For 2020/21, savings income of up to £1,000 is exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance is £2,000 for all taxpayers. Married couples and civil partners can save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances. 11 Take advantage of the individual savings account (ISA) investment limit and generate tax-free income and capital gains. The maximum annual amount that can be invested in ISAs is £20,000 (2020/21). You can put the whole amount into a cash ISA, a stocks and shares ISA, an Innovative Finance ISA, or any combination of the three as desired. Transferring funds into an ISA early in the tax year will maximise the amount of tax-free income arising. The availability of the tax-free savings and dividend allowances may mean that ISAs provide no benefit for many small savers, but ISAs can still offer tax advantages. 6 When selling a home, be prepared to pay any CGT due within 30 days of the completion date. From 6 April 2020, if you sell or give away a UK residential property, you must report any CGT due to HMRC, and pay it within 30 days of the completion date. This report must be made online, and there are penalties for late reporting. The calculation of the CGT due takes account of any previous UK residential property disposals made during the same tax year, but ignores other disposals (including subsequent capital losses). A final calculation is then made through the self- assessment system after the end of the tax year. 7 Where you or your partner receive child benefit and your income is more than £60,000, you have to pay extra tax to claw back the child benefit received. If your income lies between £50,000 and £60,000, the extra tax charge will be equivalent to 1% of the child benefit for every £100 of income over £50,000. The tax charge applies to the higher earner in the family, irrespective of who receives the benefit. To mitigate the tax charge, you can halt your child benefit payments, but keep the claim live to protect state pension entitlement. If your income has fallen below £50,000, you can ask HMRC to start the child benefit payments again. Don’t delay as the payments can only begin from the Monday after you ask for them to be reinstated. 8 If you own a trading company, you can reduce the CGT payable on a future sale by spreading the shares between yourself and your spouse. If you both meet the 5% shareholding test for at least the two years before the sale, and are a director or company secretary KEY GUIDE | April 2020 | Tax Planning Tips 4 Tip Estimate your income for 2020/21 and if this is likely to be less than £60,000, ask HMRC to restart your child benefit payments. EXAMPLE Anna receives child benefit in respect of her two children and has an annual profit of £60,000 from her self- employment. Some years ago she asked HMRC to halt her child benefit payments so she didn’t have to pay the tax charge. Due to the Covid-19 lockdown, Anne predicts her income will drop to £30,000 for 2020/21. On 6 April 2020, Anne asked HMRC to restart her child benefit and those payments will be made from 13 April 2020.