It’s almost the end of the tax year, which occurs on the 5th of April. This time of year is one of the clearest when it comes to reviewing your taxes and therefore, finances in their entirety. The benefits of carrying out an annual review of your affairs are many – the most important of which is reducing your liabilities when it comes to matters of taxation.
Salisburys Chartered Accountants North Wales are more than equipped to help you with this task (no matter how daunting it may seem!) either with advice or our comprehensive range of services which can help you as an individual and also your business.
The following is an overview of the changes to come for 2017 and beyond. If you would like more information on any of the subjects carried within, Download our Guide in PDF form.
Capital Gains
Perhaps the most widely spoken element of the Spring Budget is the changes to Capital Gains taxation, and they are as follows.
The change is essentially that Capital Gains Tax (CGT) rates were at 18% falling between the basic rate band, before the 5th of April, 2016. CGT above the basic rate band was charged at 28%.
From the 6th of April 2016, CGT was charged at the rate of 10% within the basic rate band. There was a flat rate for CGT which was billed above the basic rate, at 20%. (Keep in mind, there were a few far between exceptions to this rule – such as the gain on residential property that doesn’t qualify for private residence relief – and these exceptions were all at rates before 2016.)
What is universal is that gains (after deduction of an annual exemption) are added to an individual’s income to determine the rate of CGT. Furthermore, Entrepreneur’s Relief gives a 10% tax rate on the first £10m of qualifying business gains, which applies to each individual over a lifetime.
How to Navigate Capital Gains?
It is worth considering that the first £11,000 of gains are CGT free, and are covered by an annual exemption. Spouses, of course, have an annual exemption, and so do children. It is well worth considering selling assets standing at gain before the end of the tax year, to take advantage of this annual exemption. While most mourn the loss of “Bed and Breakfast” (sale and repurchase) of assets as it’s simply no longer a viable thing, there are still ways to get around this and allocate your assets well.
Your accountant at Salisburys will be able to go through the intricacies with you, but a very basic way of thinking about this is by selling your assets to a spouse. Another technique is selling your assets and then repurchasing them via an ISA – though please keep in mind that no action should be taken without advice from one of our team.
What is Investor’s Relief?
In 2016 and 2017, a new 10% rate was introduced to external investors in unlisted trading companies, whereas the older Entrepreneur’s Relief was targeted at directors and employees of these companies. Investors Relief does have quite a lot of value – and this is directly linked to the following scenarios:
Within asset-backed trades which are excluded from EIS and SEIS, such as hotels, property development and agriculture industries. These companies are not regarded as listed and so qualify for EIS. Please keep in mind that the majority may not be able to qualify – thanks to EIS being restricted to companies with gross assets of less than £15m.
Future Dividend Changes
At present, when an individual receives a dividend, it is subject to different tax rates compared to other forms of income. Rates of tax are calculated at 7.5% for basic rate taxpayers, 32.5% for taxpayers at a higher rate, and 38.1% for those paying tax at an additional rate.
Of note is the Dividend Allowance tax, which taxes an individual 0% at the first £5000 of dividends within a tax year – no matter how much marginal rates on your tax you presently pay.
Changes to Your Savings Income
Savings Income is generally defined as interest which is calculated on funds you may hold with a bank or a building society. Throughout 2016 and 2017 your Savings Allowance applies toward any savings income. This toward the future is taxed at a savings-nil or 0% rate and Savings Allowance on an individual basis per year is allocated at £1000. With this, banks, building societies and NS&I no longer deduct tax from any account interest they pay to customers.
Family Companies – What You Need to Know
The payment of bonuses to directors, as well as dividends to shareholders, has been mentioned within 2017’s Spring Budget, and you should give careful consideration as to whether or not payment should be made before or after April the 5th. The date of payment will almost certainly affect the rate of which it is payable.
For many directors and shareholders, the cost of receiving payment this year will be substantially higher than it will be after April the 5th. Other tax issues are worthy of consideration, such as loss of some or all of a personal tax allowance if the total “adjusted net income” exceeds the sum of £100,000.
Another thing to ponder is that tax charges can and do arise on companies which “loan” a director/shareholder advances, such as personal expenses paid for by a company. These are usually accounted for via Directors Loan Account which can become overdrawn.
Should the account still be overdrawn up to nine months later, tax charges arise on the company. If you’re concerned about whether or not tax is being levied on your company, Salisburys Chartered Accountants can help you with a full and comprehensive review which should set your mind to rest.
Making your Investments far more Tax Efficient
ISAs exist as a popular form of investment which is absolutely tax-free for Income tax, as well as Capital Gains tax. The maximum investment limits are set for each tax year, and most of us are aware that the end of the next tax year is very soon, on the 5th of April, 2017. With this considered, this deadline is looming. A reminder: An individual aged 18 or over may invest in one cash, one stock and one share, as well as one innovative finance ISA per tax year – on an overall investment of £15,240.
Keep in mind that from the start of the next tax year, the ISA Subscription limit will rise to £20,000, so depending on your circumstances, it may be better to wait. An accountant, such as our team in St Asaph, will be able to assist and advise you properly.
Other Investments with Tax Relief
Venture Capital Trusts are little-known means to invest in the shares of unquoted trading companies. As an investor, you will be exempt from taxes on dividends, and also on capital gains arising from disposal of these shares when the time comes. Income tax relief (30%) is also available on subscriptions for VCT shares (up to £200,000) per tax year — though it should be noted that this only applies if you have held these shares for at least 5 years.
Alternatively, the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) do allow income tax relief on new equity investment — though it should be noted that this income tax relief only applies to qualifying unquoted trading companies. Where the schemes differ is that for EIS, there is 30% tax relief on investment up to a sum of £1m and for SEIS, there is 50% relief on £100,000. CGT exemption is given to qualifying shares after 3 years.
Pension Contributions and You in 2017
There have been a number of significant changes in the way that pension contributions are calculated in 2017. For those with pension savings deemed as significant, it may be possible to utilise Fixed or Individual protection in order to better protect the standing contribution.
As it stands, per year an allowance of £40,000 may be contributed into a pension fund. This allowance includes employer pension contributions as well as your own. Contributions in excess of this £40,000 limit may be taxed. What’s interesting to know is that unused annual allowances can be used – though this applies on a 3-year basis. Should an individual not have met the £40,000 excess within the last three years, they may use this allowance should their current year’s contribution exceed £40,000.
This still stands, but from April 2016 the annual allowance is tapered for those with additional annual income over £150,000. Essentially, for every £2 of income above this new threshold, down to a minimum of £10,000. This lower limit may also apply if you have started drawing your pension.
Pensions and Tax Relief
Tax relief is available on pension contributions, at the taxpayer’s marginal rate of tax. For example, a higher rate taxpayer can pay £100 into a pension scheme at a cost of £60. (For additional rate taxpayers, that’s £100 at a cost of £55.)
Any individual, including children, can contribute £3600 annually without any reference to earnings, and higher amounts can be paid based on net relevant earnings. There is absolutely no facility to carry contributions back to the previous tax year, which should be kept in mind. A good thing to consider for the directors of family companies is the implementation of employer pension contributions. Should a spouse be employed within this company, the company would be in a good position to make reasonable contributions on their behalf.
Please keep in mind that the information we have published is primarily for information purposes and is not intended to replace the advice of an accountant. The above information is in view of regulations at the date of publication and we cannot accept responsibility for individuals using this information to take or refrain from action.
Salisburys Chartered Accountants in St Asaph, North Wales are more than happy to assist and advise you on your financial position, and have a range of services which are aimed at both individuals and businesses.
