Tax Reminders

Timely New Year tax reminders

February 27, 2018

Start the new year with these timely tax reminders from TAG Accountants Group. Learn how to save tax, meet deadlines, and plan ahead.

Save tax and avoid penalties with TAG Accountants Group

It is no secret that UK tax rules are not easy to understand and certainly not logical in their application. Here at TAG Accountants Group, part of our role is to remind our clients about key tax issues and judging by the telephone calls we receive, some certainly cause more confusion than others.

So, with that in mind, here are just a few topical tax reminders together with our thoughts thereon:

Use your ISA and pension allowances before the end of the tax year

An obvious tax planning point to consider at this point in the year would be to maximise your ISA allowances for the 2017/18 tax year (currently £20,000 each). These allowances cannot be carried forward if unused.

For most taxpayers, the maximum pension contribution is £40,000 each tax year, although this depends on your earnings (if you earn more than £110,000, you could see this figure reduced). This limit covers both contributions by the individual and their employer.

Remember that the unused allowance for a particular tax year may be carried forward for up to three years and can be added to the relief for the current year, but then lapses if unused. If you have some spare cash and have not fully utilised previous years’ allowances, it is worth considering additional contributions.

Note that for higher rate taxpayers, the net cost of saving £10,000 in a pension is only £6,000. However, this higher rate relief may not last forever as there are always rumours the Chancellor could withdraw higher rate tax relief, so acting sooner rather than later may be advisable.

Passing on the family home

This is an area that commonly causes confusion. New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your Will, and we can work with your solicitor to ensure that your Will is tax efficient.

From 6 April 2017, an additional inheritance tax nil rate band of £100,000 is available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase to £175,000 in 2020, meaning a married couple can leave the family home up to £1 million in value to direct descendants with no inheritance tax to pay. This additional relief is however restricted if your assets exceed £2 million. Although the rules are complicated, we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

What about downsizing to a smaller property?

This is a common practice as we get older, but people are often concerned that it affects the new relief referred to above. For clarity, the new inheritance tax relief for passing on the family home is protected even when you downsize to a smaller property.

For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000, they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  They could even sell up completely and move into a rental property and still get the inheritance tax relief!

Making regular gifts

Whilst on the subject of inheritance tax planning, why not consider setting up a standing order to family members? Such regular gifts can be the scope of inheritance tax, provided they are made from surplus income and not out of capital. It would be necessary to demonstrate that you are left with sufficient income after tax and living expenses to maintain your normal lifestyle. Unlike the £3,000 annual inheritance tax allowance, there is no monetary limit for regular gifts out of income, provided the above conditions are satisfied.

Get proper advice

The rules regarding all these tax areas are complex. So, if you wish to reap the benefits and maximise any reliefs, we recommend you take proper, professional advice. To do that, call 01902 783172 to discover how our specialist tax team here at TAG Accountants Group, Wolverhampton could help guide you through the entire process.

We very much look forward to hearing from you!