Year End Tax Planning 2019
It is always worth taking a moment to consider whether there is any action you should take before the end of the current tax year and take advice if required.
Non domiciled residents in the UK
As a non domiciled resident in the UK, if you have ever made a claim for the remittance basis of taxation then there are further considerations to review before the end of the current tax year.
Planning for a move to the arising basis
If your first year of claiming the remittance basis was the year ended 5 April 2015, then you have until the end of the tax year to consider making a foreign capital loss election to benefit from utilising foreign losses against UK or foreign gains. If this deadline is missed, then you will not be able to claim foreign capital losses even if you move to be taxed on the arising basis. Only if you become UK or deemed UK domiciled in the future, will the ability to claim foreign losses resume. Any losses that you wish to claim in relation to the 2014/15 tax year must be submitted to HMRC by 5 April 2019.
For those that have been tax resident in the UK for seven consecutive tax years, from 6 April 2019 in order to continue to benefit from the remittance basis of taxation you will be required to pay the Remittance Basis Charge (RBC). This will be £30,000, unless your unremitted income and gains are below £2,000 for the tax year. The RBC is charged in addition to any income or gains that are actually brought to the UK. You can of course not pay this charge but will instead need to be assessed to UK tax on your worldwide income and gains, with deductions for foreign tax paid where appropriate (known as the arising or worldwide basis).
If it is likely you will move to an arising basis from 6 April 2019 to avoid this charge, you may wish to consider if you can bring forward any overseas income or to sell overseas assets at a gain to the current tax year. In particular, if you have an investment portfolio that contains non-reporting funds for UK tax purposes, it may be a good opportunity to sell these investments to reinvest in investment funds that have the HMRC approved status, to reduce your exposure to higher tax rates on the gains.
Mixed fund cleansing
The mixed fund cleansing opportunity comes to a close on 5 April 2019, so if you have previously claimed the remittance basis and have overseas funds comprised of a mix of different income and capital and which potentially you may like to access to use in the UK, then a review is required without delay.
Capital loss election
If you have been resident in the UK and claimed the remittance basis for the first time in the year to 5 April 2015 or later, you should consider whether you need to make the capital loss election as your opportunity to do so may end at 5 April 2019. This allows you the benefit of being able to offset losses made outside the UK against capital gains made both outside and inside the UK. There are specific rules that are relevant to this election, so if you feel this may be relevant to you please make arrangements to discuss your specific situation with one of the team.
Overseas workdays relief
If you benefit from Overseas Workday Relief and you have operated a qualifying account for the special mixed fund rules, then transactions can be aggregated on an annual basis with remittances to the UK being treated as from the current tax year income, in priority to prior year income. In order to avoid ‘trapping’ taxed UK employment income, you may wish to consider remitting this to the UK before the first salary payment after the 6 April 2019. Alternatively, you can open a new qualifying account, but care should be taken to ensure that you meet a number of HMRC requirements to continue to benefit from the advantageous special mixed fund rules.
Rebasing for deemed domiciled individuals
And finally, for those who became deemed domicile from 6 April 2017 due to long term residency in the UK, and had previously paid the Remittance Basis Charge (RBC) then please remember that you uniquely benefit from the ability to rebase overseas assets, so if they are sold you will only be subject to capital gains tax on the increase in value from 6 April 2017.
Income Tax in general
Is your annual income is between £100,001 and £125,000? If so, you will be paying a 60% effective rate of tax in 2019/20 and may wish to consider transferring income-producing assets to a spouse; or to speak to your employer about exchanging part of your salary for payments into an approved share scheme or additional pension contributions, to take you below the £100,000 threshold.
For landlords the mortgage interest restriction rules take a further reduction in 2019/20, which means only 25% of finance costs can be claimed as a deduction to give tax relief at your marginal rate of income tax, and from 6 April 2020 all finance costs will only have tax relief at basic rate. However, it is possible for married couples or civil partners to allocate their joint rental income in a tax-efficient manner by setting up a deed of trust and filing the appropriate forms with HMRC.
Pensions and investments
If your income exceeds £150,000 then the standard annual pension allowance may be restricted to as low as £10,000 per annum, and could potentially put you in a position in which you incur a pension savings charge. This is calculated at your marginal rate of tax on any excess, and can come as a shock for those who have not carefully checked the documents sent to them by their pension provider. There is a possibility that the charge can be paid from your pension savings, but you do need to consider if this is the right choice for you as this will deplete funds that are within a tax free environment. There are also deadlines to elect for this to be paid by the pension provider, so if you are going to consider this option then a review of your pension savings should be done without delay.
If you have exceeded the current tax years allowances you may avoid a charge if you have unused allowance from the previous three tax years. As 2015/16 was the final tax year that the annual pension allowance was not tapered in line with income levels, then you may potentially have £40,000 of unused relief. However, to take advantage of this, the pension contribution will need to be made before 5 April 2019 as this cannot be carried forward to 2019/20.
Dividend and savings allowance
It is worth ensuring you are using your dividend allowance of £2,000 each so £4,000 for a married couple. There is also the savings allowance which is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayers. Additional rate payers, so those with over £150,000 of taxable income, do not benefit from this allowance.
Capital Gains Tax
Have you utilised your annual exemption of £11,700? It is also a good opportunity to review your investments before the end of the tax year to identify any claims for capital losses, as these can be carried forward indefinitely to set against future gains. And for certain types of shares, there can be an opportunity to offset capital losses against your income of the current or previous tax year.
Investments which give tax relief
Given the restrictions to tax relief on pensions, as outlined above then you may wish to consider looking at other tax efficient savings planning.
ISA limits are currently at £20,000 per person per tax year which may provide another tax efficient alternative for funds which would traditionally have been invested in pension schemes. US citizens need to be very careful when considering ISAs as stocks and shares ISAs are not tax exempt from a US perspective, and perhaps more importantly can result in some specific unexpected US tax consequences.
EIS and VCT
Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) offer generous income tax reliefs, as well as possible capital gains tax deferral and exemption.
Venture Capital Trusts (VCT) also attract income tax relief on subscriptions of up to £200,000 at 30% and although they do not benefit from any capital gains tax reliefs you would benefit from tax-free dividends. This may be attractive to investors that have seen their dividend allowance reduce from £5,000 to £2,000 for the 2018/19 tax year.
Have you reviewed your gifts throughout the year to ensure you have benefitted from the maximum gift allowances? The standard annual exemption for exempted gifts is £3,000 per annum, however if you did not utilise this allowance in the 2017/18 tax year then you have an opportunity to carry this forward to the current tax year and utilise £6,000 of allowances before 5 April 2019
Inheritance Tax (IHT) is payable on the value of any estate above £325,000, which is the current Nil Rate Band (NRB) and this will remain at this level until at least 5 April 2021. Some positive news is that the Residence Nil Rate Band (RNRB) will increase in 2019/20 to £150,000 and applies to a residence passed, on death, to a direct descendant. The final increase will take effect from April 2020 and will then provide a total IHT allowance of £500,000 per person, so a married couple or civil partners could potentially shelter £1 million from 40% IHT. The RNRB is reduced if the net value of your estate is over £2 million, so if your estate is close to this limit then it is even more important that you take advantage of any planning opportunities to preserve the RNRB.
We hope that you have found this review helpful, however not all suggested planning advice will be suitable for everyone. If you would like to discuss any of the points outlined and how they impact on your specific circumstances, please feel free to call our friendly team on 01932 320800 or email firstname.lastname@example.org