End Of Tax Year Planning 2019/2020

The current tax year ends on 5 April 2020 and this date represents the final chance to use many of your annual thresholds and allowances. And, as you don’t have the option of carrying forward many of these allowances, failing to use them means you lose them.

Keeping track of changing thresholds and effectively managing your allowances can be tricky.

So, here’s a guide to a few things to consider in order to get you, your family and your friends ‘end of tax year’ ready:

1) Use up your ISA allowance

Individual Savings Accounts (ISAs) are a great way to invest and save. They’re also incredibly tax efficient.

The maximum you can pay into an ISA in the 2019-20 tax year (known as the ‘ISA allowance’) is ￡20,000.

Interest earned from a Cash ISA is tax-free and any gains you make on investments in a Stocks & Shares ISA are free of both Income Tax and Capital Gains Tax (CGT). But the allowance can’t be carried over into the next tax year; if you don’t use your full allowance, you lose it.

2) Use up the allowance in your child’s Junior ISA

If you’ve taken out a Junior ISA (JISA) for your child, it will be subject to the same exemptions on Income Tax and CGT as an adult ISA.

However, for the 2019-20 tax year, the annual allowance for JISAs is ￡4,368.

Your child can begin to manage their ISA from age 16 and withdraw funds from 18. Or, they can leave it where it is, at which point it would convert to an adult ISA.

3) Top up your pension

Since 2014-15, you have been able to pay up to ￡40,000 (or 100% of your annual earnings, whichever is lower) into your pension during a tax year. This includes contributions made by your employer and any other third party. This amount is known as the ‘Annual Allowance’.

The Annual Allowance has decreased a great deal in recent years, as demonstrated by the graph below, so knowing how much you are contributing into your pensions is crucial, especially as unused Annual Allowance can be carried forward for up to three years.

It’s worth noting that different allowances may apply to you if you earn over ￡110,000, or if you have already ‘flexibly’ accessed any Defined Contribution (DC) pension savings. It is therefore important to know which allowance applies to you before making any additional contributions.

4) Make use of Inheritance Tax gifting

It’s possible that your loved ones could be hit by an Inheritance Tax bill when you pass away. One way to mitigate this risk is to make ‘gifts,’ taking the gifted amount out of your estate for the purposes of Inheritance Tax calculations. 

Some gifts are already exempt. You won’t normally pay Inheritance Tax on gifts of up to ￡250, such as birthday or Christmas presents for example. You can also gift as much as you like to your spouse during your lifetime (as long as they live permanently in the UK). These are known as ‘exempted gifts.’

You can also make use of the ‘Annual Exemption.’

This is an HMRC exemption that allows you to gift up to ￡3,000 a year tax-free. Gifts can include money or possessions and the ￡3,000 limit applies per individual, meaning couples can gift up to ￡6,000 a year.

The exemption can be carried forward for one year, so if you didn’t use your exemption during the last tax year (2018-19), you could gift ￡6,000 before the end of this tax year – ￡12,000 as a couple (if neither of you used last year’s exemption).

5) Consider your Capital Gains Allowance

Capital Gains Tax (CGT) is the tax you pay when you sell certain assets and make a profit. These assets could include investments or a second property, although CGT won’t apply to any profits made on Stocks & Shares ISAs or, typically, the sale of your main residence.

The Annual Exempt Amount for Capital Gains purposes is set at ￡12,000 for the 2019-20 tax year. Any profits after this amount are liable for tax at the rates shown in the above table.

Being aware of the profits you’ve made in the tax year so far can help ensure you don’t exceed the allowance.

For example, if you are planning on selling shares that give you a ￡20,000 gain, consider making use of your CGT allowance by selling them in two batches, during this and the next tax year.

Remember too that the allowance is for individuals, so couples have a joint allowance for 2019-20 of ￡24,000.

If you own a second home or a Buy to Let property, be aware of upcoming changes to the way CGT is paid. From 6 April 2020, if you sell a UK residential property where CGT is chargeable, you will have 30 days from the date of completion to pay the tax owed – previously it would have been included on your tax return.

6) Make sure you use your Dividend Allowance

Dividends are paid by a company to share out the profits they have made. If you own shares in a company, you may well receive dividend payments.

The Dividend Allowance for 2019-20 is ￡2,000, which means you can earn up to this amount in dividends before you pay any tax on them.

If you’re a company director, you can pay yourself up to ￡2,000 of dividends from the business and receive these free of tax too.

7) Make the most of the ‘gifts from normal income’ exemption

As we saw earlier, making gifts can reduce the value of your estate for Inheritance Tax purposes. To be eligible for the Inheritance Tax ‘gifts from normal income’ exemption, any gift you make must:

• Be made from income;
• Be part of your normal expenditure;
• Leave you with sufficient income to maintain your standard of living.

For this exemption to apply, the gifts you make must be regular in terms of frequency and value. So, it’s important that you ensure these gifts are made every tax year, otherwise HMRC may decide that your gifts do not satisfy the requirements of this exemption.

Keeping a record of gifts made under this exemption is important. HMRC may ask you to evidence these gifts to ensure they match the other criteria, i.e. being part of your normal expenditure and also that they have left you with sufficient income to maintain your standard of living.

Now’s the time to act!

Juggling your personal finances – whether that’s annual allowances and tax thresholds or gifting rules – isn’t easy. This can be especially true as the tax year end approaches.

As financial planners, we can help you make the most of these allowances and exemptions.

If you’d like advice about any aspect of your financial, tax or estate planning - please get in touch on 0208 943 9229 or email me [email protected]

With kind regards,

Amyr

p.s.: please note that the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performances.

Amyr Rocha-Lima is a partner and financial planner at Holland Hahn & Wills LLP, a financial planning practice based in Kingston Upon Thames. He specialises in retirement planning for successful business owners and professionals in London and the South East.

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