With the end of the 2019/20 tax year (5th April 2020) fast approaching, now is a good time to review your tax affairs to make the most of all tax allowances and exemptions.
With that in mind, here are six important considerations from TaxAssist in Sudbury and Colchester, that can help improve your financial position and keep tax bills to a minimum:
A good starting point with tax planning is to calculate where your total income falls relative to the various tax bands and rates which apply. There are several tax traps where you can be stung with very high marginal rates of tax, here are some of the top tax traps to be aware of:
To help avoid paying tax at the above high marginal rates, there are a number of things you could consider doing and we have included some further details below.
Making personal pension contributions can be a very efficient way to reduce your tax exposure. Tax relief is given on amounts contributed to a personal pension scheme at source, which provides basic rate relief. Higher and additional rate relief is given by extending the basic and higher rate limits by the gross pension contribution.
Making personal pension contributions is therefore a very efficient way to reduce tax charges. However, there is a sting in the tail here as restrictions on the amount which may be contributed into your pension scheme apply. Expert advice is needed to make sure you don’t breach any of these limits as this can lead to increased tax being owed.
It’s also possible to reduce your tax bill by making charitable donations. Individuals receive tax relief on donations they make to UK registered charities and relief is also available for donations to charities registered in EU member states, Norway and Iceland.
When it comes to Capital Gains Tax (CGT) – the tax on gains from the sale of assets such as properties or stocks and shares – most of us have an annual CGT allowance before CGT is applicable.
For the 2019/20 tax year, you can make net gains of up to £12,000 before CGT may be payable to HMRC. If you do not use your CGT allowance it cannot be carried forward and is lost. You could consider selling assets to realise gains if this is consistent with your investment strategy.
You could also consider making gifts to your spouse or civil partner to possibly use any lower rates of tax or their CGT exemption, prior to any onward sale. Your spouse or civil partner may also have losses, which could be useful in sheltering any gains you plan to realise.
You should speak to an expert before engaging in any planning to review your particular circumstances.
In 2019/20, the maximum you can invest in Individual Savings Accounts (ISAs) is £20,000. As the income which arises on ISA investments is exempt from income tax and any capital gains are exempt from CGT, ISA investments are a very efficient way to make savings.
There are also a number of other Government-approved tax efficient investments, which include National Savings, the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and the Venture Capital Trusts scheme.
Several conditions must be met for relief to be available under the above schemes and you should seek professional advice before considering making any investments.
Finally, the best way to ensure that your tax planning needs are taken care of is to use an accountant.
For a free initial consultation, pick up the phone and call 01206 576800 or drop us a line using our online enquiry form.
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Hello! I'm Penny from thebestof Sudbury, shouting about the best local businesses from Hadleigh through the Clare. When I'm not doing that, you'll find me knitting socks or tending to my 6 chickens
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