Loading…

Want to reduce your tax bill for 2019/20?

As we approach the end of the current tax year on 5 April 2020, there are a number of things you can do to ensure that your tax bill for 2019/20 – payable by 31 January 2021 – is as low as possible. Here we explore a few practical tactics.

1. Donate to Charity

Gift Aid 

When an individual makes a charitable cash donation within the scope of a Gift Aid election, they can obtain income tax relief at their marginal rate on the grossed up amount of the gift. Correspondingly, the charity can reclaim the tax equivalent of 25% of the cash gift. 

For example, if a higher rate taxpayer (40%) donates £100 to charity, their basic rate band is extended by £125. Provided the taxpayer pays at least £25 of tax, the charity reclaims £25 (20% of £125) from HMRC. The taxpayer also benefits by £25, by virtue of paying tax at 20% instead of 40% on the grossed up donation of £125.

An additional rate taxpayer (whose marginal rate is 45%) would get enhanced relief of £31.25, i.e. 25% of £125, in the above scenario.  

Moreover, Gift Aid payments made after 5 April 2020 can be included in your tax return for 2019/20 provided you submit it electronically and by the filing deadline of 31 January 2021. 

Land and shares

You can donate assets other than cash to charity, such as land or shares. In this case, the market value of the land or shares donated to charity is deductible from your general income, providing relief of up to 45%. In contrast with cash gifts, you only receive relief in the tax year the donation is made: there is no carry back provision like with Gift Aid. Therefore, if you want to claim relief in 2019/20, you must make the donation by 5 April 2020.

You do not have to pay capital gains tax on land or shares that you give to charity. 

About the author

Akin Coker

+44 (0)20 7556 1332
cokera@buzzacott.co.uk

1. Donate to Charity

Gift Aid 

When an individual makes a charitable cash donation within the scope of a Gift Aid election, they can obtain income tax relief at their marginal rate on the grossed up amount of the gift. Correspondingly, the charity can reclaim the tax equivalent of 25% of the cash gift. 

For example, if a higher rate taxpayer (40%) donates £100 to charity, their basic rate band is extended by £125. Provided the taxpayer pays at least £25 of tax, the charity reclaims £25 (20% of £125) from HMRC. The taxpayer also benefits by £25, by virtue of paying tax at 20% instead of 40% on the grossed up donation of £125.

An additional rate taxpayer (whose marginal rate is 45%) would get enhanced relief of £31.25, i.e. 25% of £125, in the above scenario.  

Moreover, Gift Aid payments made after 5 April 2020 can be included in your tax return for 2019/20 provided you submit it electronically and by the filing deadline of 31 January 2021. 

Land and shares

You can donate assets other than cash to charity, such as land or shares. In this case, the market value of the land or shares donated to charity is deductible from your general income, providing relief of up to 45%. In contrast with cash gifts, you only receive relief in the tax year the donation is made: there is no carry back provision like with Gift Aid. Therefore, if you want to claim relief in 2019/20, you must make the donation by 5 April 2020.

You do not have to pay capital gains tax on land or shares that you give to charity. 

2. Contribute to a pension

When an individual makes a contribution to a personal pension (other than via salary sacrifice), they can be eligible for tax relief at their marginal rate. As with donations made under Gift Aid, a taxpayer’s basic and higher rate tax bands are extended by the grossed up pension contribution so that they obtain tax relief at their marginal rate. Relief is limited by the lower of your annual earnings and the annual allowance. 

The standard annual allowance for gross pension contributions is £40,000 gross, subject to the level of your income. However, for those with income in excess of £150,000, the annual allowance is tapered down to a minimum of £10,000 (gross) by £1 for every £2 of adjusted income in excess of £150,000. Pension contributions in excess of the annual allowance are subject to the annual allowance charge. This effectively claws back the tax relief.

One important thing to note, is that you can carry over any unused annual allowance from the three previous tax years as long as you were a member of a pension scheme in those years. Therefore, it is important to review your position and take appropriate action to maximise your pension contributions by 5 April 2020, after which any unused allowance from 2016/17 is lost.

Preserving your personal allowance

It is not unusual for individuals who earn between £100,000 and £125,000 a year to find that they have an unexpectedly high marginal rate of tax.  

This is because the tax-free personal allowance (£12,500 for 2019/20) reduces by £1 for every £2 of income above £100,000. Therefore, those that earn £125,000 or more during the year do not receive a personal allowance at all. Taxpayers who have annual salaries or pension income below £100,000 will generally have received the personal allowance by application of their PAYE code. However, if they receive other income (e.g. bonus, interest, dividends) that pushes them above this threshold, some or all of the personal allowance will be lost and tax will be payable on the withdrawn relief. 

Gift Aid donations and personal pension contributions have the effect of extending the £100,000 threshold, such that the personal allowance is restored by £1 for every £2 donated to charity or invested into a personal pension. The combined effect of the extended basic rate band and the restored personal allowance gives an effective rate of tax relief of 60%. 

3. Invest in a Start-Up Company

i. Enterprise Investment Scheme (EIS)

From 6 April 2018 the EIS allowance has effectively doubled. It is now possible to invest up to £2 million in EIS, provided anything over £1 million is invested in “knowledge-intensive” companies. These are companies that carried out research, development or innovation at the time they issued, or are issuing shares. You receive an income tax deduction of up to 30% of the EIS investment and have the option to defer capital gains on assets disposed within a certain timeframe, equal to the amount invested.

ii. Seed Enterprise Investment Scheme (SEIS)

You can invest up to £100,000 in the year and receive an income tax reduction of 50%, potentially wiping £50,000 off your income tax bill. Furthermore, you can claim to treat 50% of a capital gain as exempt from capital gains tax in the year you make the SEIS investment (i.e. a gain of up to £50,000).

IMPORTANT: Don’t forget that it is possible to carry back any EIS/SEIS subscriptions made in the current tax year to 2018/19, providing the EIS/SEIS limit has not been exceeded in that year. As the 2018/19 Self-Assessment filing and payment deadline has now passed, this will generate a tax repayment.

iii. Venture Capital Trust (VCT)

A Venture Capital Trust might be suitable for you if you are prepared to invest in higher risk funds. You can invest up to £200,000 in a year and receive an income tax reduction of 30%. However, unlike EIS or SEIS, there is no carry back.

 

Want to make an enquiry?

The end of the tax year always provides a good opportunity to take stock of your finances and ensure that you are using the tax reliefs to which you are entitled to. If you need your affairs reviewed by a professional adviser, please do let us know by completing the form below and one of our experts will be in touch. 

Please complete all required fields above.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
You might also be interested in… Tax planning and advice for individuals

UK personal tax compliance

We see the Tax Return as a window into our client’s life and the best way for us to get to know each other very well. We aim to see that the right amount is paid at the right time on the basis of full, accurate and timely disclosure. 

We assume a role somewhere between trusted adviser and knowledgeable friend – a role vital in ensuring clients are able to keep and enjoy more of what they earn and bequeath it to the next generation.

UK personal tax planning

UK tax is constantly changing and you will have events that require tax planning (e.g. a possible investment into a business or sale of an asset) while also having ideas of how you would like to use your wealth to benefit you and your family (e.g. via gifts or the creation of trusts).

We aim to ensure that you make the most of the tax legislation, while being cautious and reasonable in our approach to tax planning.

Do you have your UK tax rates cards for 2019/2020 yet?

If not, then don’t worry, we’ve got it here for you. This useful guide has all the year’s tax rates for 2019 and 2020 in one place, making it easy for you to refer to throughout the year. Included in the guide is everything from the main Income Tax and Corporation Tax rates, through to deadlines and allowances. Download the tax rates guide now and see what they mean for you this year. 

2019 and 2020 UK tax rates and allowances

Non-Doms and Non-UK Residents

Foreign domiciled UK residents have access to some very beneficial tax rules but those benefits come with complexity, which is ever increasing. We help those who are yet to come to the UK, are already here or those who have left to ensure that they make the most of the available rules.

For anyone outside the UK who owns UK real estate (including non-UK companies), we help them with their ongoing tax compliance and any related tax planning.

US tax

If you’re a US citizen living in the UK or you’re planning to move here, there will be a number of important life stages that you will need to plan for. Our dual-qualified US and UK tax experts have an intricate understanding of both systems. Tell us your story and together we’ll assess your liabilities and tackle any issues before they become an issue. 

Read more…

close back
Your search for "..."
did not yield any results.
... results for "..."
Search Tags