NEW YEAR RESOLUTIONS AND NEW GOALS TO SAVE TAX

At this time of year, we think about New Year’s resolutions when it’s also a good time to start planning our tax affairs before the end of the tax year on 5 April. You could 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 your unused annual pension allowance is lost after three years. If you’re looking to do some inheritance tax planning, you could review / make your Will in the light of recent changes in the IHT nil rate band. 

PENSION PLANNING

For most taxpayers, your maximum pension contribution is £40,000 each tax year, although this depends on your earnings. This limit covers both contributions by you and your employer. And you can carry forward any unused allowance for a particular tax year for three years, and you can add it to the relief for the current year, but it then lapses if don’t use it. If you are a higher rate taxpayer, your net cost of saving £10,000 in a pension is only £6,000, but this higher rate relief may not last forever. 

PASSING ON THE FAMILY HOME

You may have noticed new inheritance tax rules for passing on the family home started on 6 April 2017. You should take this 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, if your residence is left to direct descendants, an additional nil rate band of £100,000 is now available on death. This is on top of 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 you take advantage of all the relief you’re entitled to.

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 you are a married couple currently living in a large house worth £500,000 and you downsize to a flat worth £250,000, you could give away some of the proceeds during your lifetime and yet still benefit from inheritance tax relief based on your higher valued property.  You could even sell up completely and move into a rental property and still get your inheritance tax relief!

MAKING REGULAR GIFTS OUT OF SURPLUS INCOME

While on the subject of inheritance tax planning, you could consider setting up a standing order to family members, as such regular gifts can be outside of the scope of inheritance tax, providing they are made out of your surplus income and not out of your capital. You would then need to demonstrate that you’re left with sufficient income after tax and living expenses to maintain your normal lifestyle. Unlike your £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 assess whether you’re able to take advantage of this tax relief.

TAX RELIEF FOR ENERGY SAVING TECHNOLOGY

You could save on energy. Over the years, there’s 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. This also 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. From last year’s Autumn Budget, new technologies were being added, but certain items such as Biomass fired warm air heaters would no longer qualify from 1 April 2018. Where the expenditure has the effect of creating or increasing a loss for corporation tax purposes, your 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 your corporation tax rate from 1 April 2018. Thus, the relief reduces from 19% to just 12.67% from 1 April 2018.

RELIEF FROM ADDITIONAL 3% SDLT CHARGE
You could save on Stamp Duty Land Tax, as much of the focus in the Autumn Budget on Stamp Duty Land Tax (SDLT) concerned the abolition of the duty if you are a first time buyer with a property of up to £300,000. There were also welcome news, if you are involved in other property transfers, where the 3% supplementary SDLT charge potentially applies, and when an interest in a second property is acquired. The 3% supplementary charge will now not apply, where a court order issued on a divorce or dissolution of a civil partnership prevents someone from disposing of their interest in a main residence or a spouse buys property from their spouse. There are a couple of other situations where the 3% supplement does not apply. Please check with your solicitor. 

ADVISORY FUEL RATE FOR COMPANY CARS

You could save on fuel. These are the suggested reimbursement rates for your employees’ private mileage using their company car from 1 December 2017. Where there has been a change, previous rates are shown in brackets.

Engine Size

Petrol

Diesel

LPG

1400cc or less

11p7p

1600cc or less

9p

1401cc to 2000cc

14p (13p)9p (8p)

1601 to 2000cc

11p

Over 2000cc

21p13p (12p)14p (13p)

Note: For hybrid cars, you must use your petrol or diesel rate. You can continue to use your previous rates for up to 1 month from the date the new rates apply.   

NO INDEXATION OF COMPANY GAINS AFTER DECEMBER 2017

You could save on company gains. Indexation allowance was introduced in the 1970s to provide relief from paying tax on inflationary gains based on increases in RPI. The relief was abolished in 1998 for individuals and trusts, and replaced with taper relief. However, it was retained for companies. The Autumn Budget announced that indexation for corporation tax would cease for disposals from January 2018 onwards, although indexation up to December 2017 would be retained. Although the change will apply to all chargeable assets owned by companies, it will have a significant impact on property investment companies where indexation allowance acted as a shelter from inflationary gains.  

DIARY OF MAIN TAX EVENTS – JANUARY / FEBRUARY 2018 

Date

What’s Due

1/01

Corporation tax payment for year to 31/3/17 (unless quarterly instalments apply)

19/01

PAYE & NIC deductions, and CIS return and tax, for month to 5/01/18 (due 22/01 if you pay electronically)

31/01

Deadline for Self-Assessment tax return for 2016/17 if filed online. Also the due date for 2016/17 balancing payment and 50% payment on account of 2017/18 tax.

1/02

Corporation tax payment for year to 30/4/17 (unless quarterly instalments apply)

19/02

PAYE & NIC deductions, and CIS return and tax, for month to 5/02/18 (due 22/02 if you pay electronically)


Lotuswise Chartered Accountants and Business Consultants can help you with your tax. Provide us with your information and we will help you plan your affairs to minimise your tax and help you set aside sufficient funds now and in 2018. So please 
contact us now.

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