Time to talk to your Accountant
Now February is here, you might think that, as accountants, we would be putting our feet up and relaxing after all of your self-assessment tax returns have been completed and filed with HMRC. That’s not the case. In fact, we have some really important work to do in this month… minimising your future tax bills.
Now is the perfect time to support you with your end of the year tax planning and look at how you can make the most of any unused allowances and exemptions. There are a range of options from maximising personal allowances, Capital Gains Tax and Inheritance Tax exemptions, through to transferring allowances between spouses and making tax-efficient pension contributions.
Personal allowances
It is important to consider using your personal allowance, which is £12,500 for 2020-2021. If you have your own company and have not already drawn anything, then you could consider a salary of up to £8,632 as this will not incur a national insurance liability, although you do receive a credit towards your state pension.
If you are earning more than £100,000, then the personal allowance is reduced by £1 for every £2 of income over this figure and to nil if your income exceeds £125,000.
If you and your spouse are basic rate tax payers, it is possible to transfer up to 10% of unused personal allowances to a spouse or civil partner.
Capital Gains Tax (CGT)
Transfers between a spouse or civil partner can be made at no gain/no loss. This means that a transfer ahead of a disposal can mean that both annual allowances could be used.
Inheritance Tax
You can gift up to £3,000 a year without any Inheritance Tax (IHT) implications and this allowance can be carried forward to the next year (but only for one year). There’s no IHT to pay on gifts between spouses or civil partners.
Pensions
Pensions have traditionally been an area where tax savings can be made, with tax relief for pension premiums continuing to be tax efficient. If you’re a UK tax payer, in the tax year 2020-2021, the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower.
Any contributions you make over the limit won’t attract tax relief and will be added to your other income and be subject to Income Tax at the rate which applies to you.
It is important not to overlook the lifetime allowance. For 2020-2021 this is £1,073,100. It applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension. If you come close to breaching these limits, then consider contributions to your spouse or civil partner.
February is also the ideal time to have a catch up and review your affairs, whether business or personal. Contact us to arrange your financial review to see how much we could save you.
We would be happy to discuss your requirements. Whether you’re an individual, self-employed or a limited company, we can tailor a plan to help you reduce your tax liabilities now and for the year ahead. Please call our team on: 01892 513515 or email: info@lewisandco.biz