5 year-end tax planning tips for 2019/20

With less than a month until the end of the 2019/20 tax year, time is running out to maximise any unused allowances. 

You either use them or lose them before 5 April as they will all be reset when 2020/21 gets under way the following day. 

From tax-efficient ways to extract profits from your company to making the most of your savings, we’ve highlighted our top five tips for things to address before the end of the tax year.

Pension contributions 

If you earn between £100,000 and £125,000 a year, the restriction on your personal allowance could be the equivalent of paying income tax at 60%.

You may want to consider increasing any tax-deductible payments to minimise this income tax cost. 

One option would be to boost your personal pension contributions, and you can carry forward any unused annual allowance from the previous three years. That’s up to £40,000 a year. 

That means, within certain conditions, you could be able to make a pension contribution of up to £160,000 in 2019/20 and receive tax relief. 

Using dividends

Directors and shareholders are usually the same people in most small companies, and dividends can be a tax-efficient way for them to pay themselves.

They are taxed differently to income tax and the £2,000 dividends allowance works on top of the £12,500 personal allowance. 

So,  if you’re paying yourself in dividends before 5 April, you can pay less tax and save on national insurance contributions. 

Income from dividends of less than £14,500 is tax-free. Above that, basic-rate taxpayers have to pay income tax at 7.5% up to £50,000. 

Higher-rate taxpayers pay tax at 32.5% on income above £50,000 and up to £150,000, while additional-rate taxpayers who receive more than £150,000 in dividends income pay tax at 38.1%. 

ISA allowance

We’re at the business end of ISA season, as savers rush to use up their £20,000 annual allowance before it resets on 6 April. 

Anyone can place up to £20,000 into an ISA in 2019/20, and feasibly do the exact same again in a month’s time when we’re in 2020/21. 

Unlike pension income which is taxed at your marginal rate, the interest or income from investments within an ISA are tax-free.

Entrepreneurs’ relief

This capital gains tax break is under real threat ahead of next week’s Spring Budget, which takes place on 11 March. 

Until 5 April, the relief is available for businesses operating as a sole trader, partnership or limited company. 

The conditions for relief and operation of the relief differs slightly for these business structures.

The maximum gain to which relief can apply is a lifetime limit of £10m, so you could sell your business in the next month for £9m and pay 10% tax. 

Marriage allowance

If you are married or in a civil partnership, you may be eligible for the marriage allowance. 

This enables couples to transfer 10% of their personal allowance (£1,250) to their spouse or civil partner. 

The option to transfer is available to couples where neither pays income tax at the higher or additional rate. 

Where assets are owned in joint names, any income is deemed to be shared equally between the spouses. 

If the actual ownership shares are unequal, income is still deemed to be split equally unless an election is made.

Elections can be beneficial for tax purposes when it comes to the marriage allowance. 

A choice can be made according to which is the most desirable when the other income of the spouse is taken into account.

All strategies, especially this late in the tax year, require careful personal tax planning so get in touch with us at advice@dunkleys.accountants or on 01454 619900. 

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