Edwards Greene Year End Tax Planning Report 2019/20

KEY GUIDE | Month 20XX | Folio Title Folio Title Folio Title Folio Title 7 SPECIAL REPORT | December 2019 | Year End Tax Planning 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. Intermediate, higher and top rate taxpayers in Scotland can claim an extra 1%, 21% or 26% in relief. 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 Venture capital trusts You can obtain income tax relief of 30% by subscribing up to £200,000 for shares in venture capital trusts (VCTs) in 2019/20. Gains are generally exempt from CGT. VCTs are investment trusts that invest in a range of relatively small trading companies. It is important to remember that EIS/SEIS shares and VCTs are high-risk investments. They may be di cult to sell and you should take specialist advice. Useful link: https://uk.reuters.com – financial and market analysis INHERITANCE TAX PLANNING Most IHT planning is not related to the tax year end, but this is as good a time as any to review your will. Inheritance tax (IHT) is payable if a person’s assets at death, plus gifts made in the past seven years before death, add up to more than the nil rate band, currently £325,000. An additional nil rate band is available where a residence is left to direct descendants – £150,000 in 2019/20, increasing to £175,000 from 2020/21 onwards. When a surviving spouse or civil partner dies, their estate will generally benefit from any unused IHT nil rate band of their previously deceased spouse or partner, up to the £325,000 maximum. 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 death of the surviving spouse or civil partner. There are several 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 didn't use this exemption in 2018/19, you can make IHT-free gifts of up to £6,000 before 6 April 2020. If you have already used your exemption for 2019/20, you could delay your next gift until after 5 April 2020 to take advantage of the 2020/21 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. IHT could see significant change over the coming years following a review by the O ce of Tax Simplification. One recommendation is that the seven-year survival period be reduced to five years, but with taper relief abolished. Useful link: www.gov.uk/inheritance-tax – HMRC guide to IHT. CHECKLIST ● Could you transfer income to your partner to minimise higher and top rate taxation next year, to maximise the tax-free savings and dividend income limits, or to avoid losing child benefit? ● Have you considered the timing of dividends and bonuses to minimise tax rates? ● Have you used your annual CGT exempt amount by making any available disposals before 6 April 2020? ● Have you used this year’s ISA allowance and made any other tax-e cient investments before 6 April 2020? ● 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? ● If you are aged over 55, have you taken advice about the options for drawing your pension savings ? ● Have you made gifts to use your annual IHT allowances ? iStock/bagi1998