Edwards Greene Year End Tax Planning Report 2018/19

KEY GUIDE | Month 20XX | Folio Title Folio Title Folio Title Folio Title 7 SPECIAL REPORT | December 2018 | Year End Tax Planning time as, or before, filing your 2017/18 tax return and this must not be later than 31 January 2019. You can obtain both income tax and CGT relief on gifts to charities of shares listed on the stock market and certain other investments. Gifts to charity are free of IHT, so remembering a charity in your will can reduce the total amount of IHT that will be paid on your estate. If 10% of your net estate is left to charity, then the rate of IHT payable will be reduced from 40% to 36%. Useful link: www.gov.uk/donating-to-charity SEIS shares and VCTs are high-risk investments. They may be difficult to sell and you should take specialist advice. Useful link: https://uk.reuters.com – financial and market analysis. INHERITANCE TAX PLANNING Inheritance tax (IHT) is payable if a person’s assets at death, plus gifts made in the seven years before death, add up to more than the nil rate band, currently (and until 2020/21) £325,000. An additional nil rate band of £125,000 in 2018/19 (increasing to £150,000 in 2019/20) is available where a residence is left to direct descendants. It is also available where a person downsizes or sells their home and leaves equivalent assets to direct descendants. However, there is a tapered withdrawal of the additional nil rate band for estates worth more than £2 million. When a surviving spouse or civil partner dies, their estate will benefit from any unused IHT nil rate band of their previously deceased spouse or partner. The transferred proportion is uplifted to the same fraction of the nil rate band in force at the date of the second death. The maximum transfer is £325,000. Any unused additional nil rate band can similarly be transferred, up to a limit of 100% of the maximum available amount at the time of second death. Most IHT planning is not related to the tax year end, though this is as good a time as any to review your will. There are a number of reliefs and exemptions, some of which are related to the tax year. ● ● Gifts totalling up to £3,000 in a tax year are exempt from IHT. If you made no gifts to use this exemption in 2017/18, you can make IHT-free gifts of up to £6,000 before 6 April 2019. If you have already used your exemption for 2018/19, you could delay your next gift until after 5 April 2019 to take advantage of the 2019/20 exemption. ● ● Regular gifts out of excess income can also be exempt. You need careful documentation to prove that you make the gifts from income rather than capital. Useful link: www.gov.uk/inheritance-tax – HMRC guide to IHT. CHARITABLE GIVING You can get tax relief for any gifts to charity if you make a gift aid declaration. You make the gift out of your taxed income and the charity benefits by claiming back basic rate tax on the value of the gift. Higher and additional rate taxpayers can claim an extra 20% or 25% in relief. You can elect for donations made in 2018/19 to be treated for tax purposes as if you had made them in 2017/18. This will benefit you if you paid tax at a higher rate in 2017/18 than in 2018/19. The election must be made in writing at the same CHECKLIST ● ● If you are aged over 55, have you taken advice about the options for drawing your pension savings? ● ● Have you considered the timing of dividends and bonuses to minimise tax rates? ● ● Have you used this year’s ISA allowance and made any other tax-efficient investments in EISs, SEISs and VCTs before 6 April 2019? ● ● Could you exempt half of this year’s or last year’s capital gains by reinvesting the gains in a SEIS? ● ● Could you transfer income to your partner to minimise higher and additional rate taxation next year, to maximise the tax-free savings and dividend income limits, or to avoid losing child benefit? ● ● Have you used your annual CGT exempt amount by making any available disposals before 6 April 2019? ● ● Have you made gifts to use your annual IHT allowances? ● ● Are you investing enough in your pension (or possibly a lifetime ISA) if you wish to, or have to, retire earlier than state pension age, which is likely to keep going up? iStock/bagi1998