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More than just your average end of year tax planning

As the end of the 2016/17 tax year approaches, it is the opportune time to recap some of the planning opportunities available before the 5th of April.  We have created a simple but comprehensive checklist considering some aspects you may wish to consider for your UK resident clients.

A print friendly pdf version of the page is available. 

Use the links below to find the sections that might be helpful with your clients:

Income Tax
Capital Gains Tax
Inheritance Tax
Corporation Tax
Investment
Pensions
Non-Domicile Individuals

Income Tax

 

What

Effect

Action

Considerations

Loss of personal allowance for income in excess of £100,000.

Personal allowance decreases at a rate of £1 for every £2 above £100k. 

 

Clients with income of £122,000+ receive no personal allowance.

Making member personal pensions contributions could help regain some or all of their personal allowance.

 

Gift Aid will have the same effect.

Contributions will depend upon relevant UK earnings, the annual allowance plus any carry forward available.

High Income Child Benefit Charge (since January 2013).

Clients with income of over £50,000 are subject to high income child benefit charge.

Personal pension contributions can lower taxable income and potentially reinstate some or all Child Benefit due.

The £50,000 limit is per individual and not per couple

Gifting income producing assets to lower tax paying spouse or registered civil partner.

Equalisation of assets could increase the total income jointly received.

Inter-spousal transfers are not subject to capital gains or inheritance tax even if the donor passes away within 7 years of the gift.

 

Could also mean taking advantage of:

  1. a) 0% saving rate applied for first £5,000
  2. b) Personal saving allowances for basic and higher tax payers and
  3. c) £5,000 dividend tax allowance

 




Capital Gains Tax

 

What

Effect

Action

Considerations

Annual exemption for 2016/17 is £11,100.

Potentially reducing CGT due this tax year on disposals.

 

 

Realising gains and utilising available allowance for this tax year.

 

Rebase the overall cost of a portfolio/asset.

CGT allowances are lost and cannot be carried forward.

 

Making full use of each year’s allowance could allow for a larger cash withdrawal in the future.

Equalisation of assets before disposal.

Could have a joint CGT exemption up to £22,200.

Transferring a client’s asset into joint names with a spouse/ civil partner.

CGT allowances are lost and cannot be carried forward.

 

Equalising estate value could potentially save on IHT.

CGT losses.

Losses for CGT purposes can be used to offset CGT gains in this tax year.

Losses need to be registered with HMRC to off-set against current or future losses. This needs to be done 4 years from the tax year the loss is made.

Use any pre-registered losses against this year’s gains, having first used current years’ losses.

 

 

 

Consider using Investment Managers.

They can manage CGT and utilise annual ISA allowances efficiently.

In-specie assets to Investment Managers to manage.

Agree with clients and investment managers what allowances are available to use.

Entrepreneurs Relief.

Business owners could claim on disposal of their company shares or some or all of their business.

Speak to the company accountant or refer to an accountant to check if assets being disposed of qualify.

Specific rules and regulations apply, professional tax advice should be sought.

‘Roll over’ or ‘Hold over’ relief

Could be claimed:

- Where assets are sold and replaced by more up to date versions or

- Selling the business as a whole.

Speak to the company accountant/ refer to accountant to check if assets being disposed of qualify.

Specific rules and regulations apply, professional tax advice should be sought.

 

Inheritance Tax

 

What

Effect

Action

Considerations

Annual exemption £3k (or £6k if previous tax year wasn’t used).

Gifting could help reduce potential IHT bill.

Ensure full allowance is used where appropriate.

A couples allowance could be up to £12k depending on any previous gifts.

Gifts from normal expenditure.

Gifting could help reduce potential IHT bill.

Regular gifts from surplus income can be gifted.

Records must be kept to verify these payments.

Deed of Variation.

Can be used when IHT has been paid on an estate to alter the Will.

Seek legal advice.

This needs to be done within 2 years of death.

 

All beneficiaries whose share is being varied must be in agreement.

 

The Government is currently in agreement with this type of ‘tax planning’ but it is being kept under review.

Outright gifts or gifts to trust.

Gifts exceeding any available exemptions start a 7 year clock and gifting could reduce IHT bill.

Gifts into trust and outright gifts need to be affordable to the clients.

 

Once the gift is made it may use some or all the nil rate band. After 7 years the full nil rate band should be restored depending if other gifts are given in that 7 year period.

Gifts to bare trusts and outright gifts are potentially exempt transfers (PET). In the event of death the gift fails and may result in an IHT liability. Where the donor survives a PET by at least 3 years taper can reduce any IHT payable on the failed PET.

 

Gifts to discretionary trusts should be within the client’s available nil rate band for the client to avoid lifetime IHT charges.

Whole of life policies.

Writing such policies under an appropriate trust can avoid any death proceeds falling into the deceased’s estate. In addition it can also provide funds which beneficiaries may use to pay any IHT liability on death.

Review existing policies.

Whole of life policies are underwritten and it will be dependent on personal circumstances if they are suitable for the client’s needs.

Business property relief.

Could claim up to 100% of the value of lifetime gifts on certain assets or on death.

Collate all necessary information and seek professional tax advice from an accountant.

Specific rules and regulations apply, professional tax advice should be sought.

 

Corporation tax

 

What

Effect

Action

Considerations

Changes to corporation tax from 6 April 2017.

1) Corporate Tax reduced to 19%.

 

2) Restriction on losses brought forward to 50%*.

Speak to the company accountant to see if any action needs to be taken this tax year.

*Greater range over the types of profit that can be relieved by losses incurred after that date will be introduced.

Employer pension contributions.

Reduces corporation tax bill as they are normally seen as a genuine expense of the company.

Check auto-enrolment staging date if not already invoked.

 

If auto-enrolment does not apply, consideration should be given to starting an employer sponsored pension scheme. 

Speak to the company accountant and HR about pension contribution levels and staging dates.

 

Employer contributions will be relievable where paid wholly and exclusively for the purpose of the trade. Care should be taken as excessive contributions may attract the Inspector of Taxes attentions.

 

Investments

 

What

Effect

Action

Considerations

ISA allowance.

Tax efficient wrapper provides protection from income and capital gains tax.

2016/17 £15,240 is the maximum amount which can be invested.

ISA allowance cannot be carried forward, use it or lose it.

Withdrawal from ISA.

ISA regulations, will allow clients who have subscribed to an ISA this tax year to withdraw funds and reinvest those funds (up to the ISA limit).

Check if funds withdrawn can be replaced into the ISA wrapper if affordable and suitable. Note not all ISA managers will offer this flexibility.

Example:

If the client invested £15,240 at the beginning of the tax year and withdrew £5,000, they can reinvest £5,000 before the end of the tax year.

Additional permitted subscriptions (APS), an additional ISA allowance where spouse or civil partner has passed away on or after 3rd December 2014.

Surviving spouse or civil partner is entitled to an additional ISA allowance equal to the value of the deceased’s ISA on death. This is in addition to their own annual ISA allowance.

Check to see if this applies to your clients before the end of this tax year.

Where the APS is paid in cash it must be within 3 years after the date of death, or if later, 180 days after the administration of the estate is complete

Venture Capital Trusts & Enterprise Investment Schemes.

Could give income and capital gains tax relief

Need to assess for suitability before making these recommendations

Can be high risk investments.

 

Pensions

 

What

Effects

Actions

Considerations

Individual Protection 2014 (IP14).

Individuals with total pension savings of £1.25million at 5 April 2014 can apply for this protection.

Deadline for this protection is 5 April 2017.

Individuals can still apply if they hold:

  • enhanced protection;
  • fixed protection 2012;
  • fixed protection 2014; or
  • fixed protection 2016. (FP16)

But not if they already have primary protection.

 

IP14 will take precedence over FP16; however, for the other protections named above, IP14 will stay dormant until the previous protection is lost or given up.

Money Purchase Annual Allowance (MPAA) under consultation to be reduced from £10,000 to £4,000.

If it proceeds, clients who have taken pension benefits flexibly from their Defined Contribution (DC) pensions could only contribute up to £4,000 into a DC pension plan from 6th April 2017.

Clients affected should maximise their DC pension contributions this tax year.

 

Those with Defined Benefit schemes (DB) may still have remaining Annual Allowance.

 

Individuals subject to the MPAA cannot use carry forward with their DC pension pots. 

Loss of some salary sacrifice advantages.

Tax advantages for salary sacrifice will be lost from 6 April 2017, except for pensions contributions (including the cost of  advice), childcare, Cycle to Work schemes and ultra-low emission cars

Those who may be affected should act sooner rather than later.

 

Arrangements in place before 5 April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Those who reach State Pension age before 5 April 2016 will no longer be able to ‘top-up’ NI contribution.

Option to pay voluntary Class 3A National Insurance contributions, to purchase additional State Pension closes on 5 April 2017.

Those who wish to benefit from this should act sooner rather than later.

For more information on the rates and the benefits please visit the Department of Work and Pensions Website or click here

 

Non-Domiciled Individuals

 

What

Effects

Actions

Considerations

Change to deemed domiciled criteria.

As of April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years.

Non-domiciled clients should seek tax advice if they are affected, as changes to their assets might be required.

Specialist tax advice for a particular tax jurisdiction might have to be sought, this may come at additional cost to the client.

Changes to UK domicile status will not affect trusts already set up.

Non-domiciled individuals with a non-UK resident trust, set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK, if retained in the trust.

Non-domiciled clients should seek tax advice if they are affected, as changes to their assets might be required.

Specialist tax advice for a particular tax jurisdiction might have to be sought, this may come at additional cost to the client.

IHT liabilities.

IHT will be charged on UK residential property held indirectly by a non-dom. through an offshore structure like a company or a trust.

Non-domiciled clients should seek tax advice if they are affected when these rules come in, as changes to their assets might be required.

Specialist tax advice for a particular tax jurisdiction might have to be sought, this will come at additional costs to the client.

 

What’s next?

 

With Brexit negotiations at the forefront of most of Parliament’s minds, the last Spring Budget and the final draft of the Finance Bill 2017 coming up in the next few months, we will have to wait and see what potential impact any new announcements and changes will have on how we advise clients. In the meantime, there is much you can do to assist your clients in this tax year and hope the above has either provided some food for thought with reasons to contact clients, or given you some discussion points with clients you have appointments with in the coming days and weeks

If you wish to discuss any of the areas above please get in touch with your regional representative from Sanlam, by clicking here, or by contacting our client services team on 0117 9752355 or by email at Client Services who will be happy to assist you further.


A print friendly pdf version of the page is available. 

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at February 2017 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.