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Tax Planning for Life 2020-21

Our annual Tax Planning for Life navigates you through a wide range of tax planning opportunities and wealth planning strategies for all stages and facets of life.

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The guide is designed to give you ideas on how you can arrange your taxes, investments and wider financial affairs to reduce your own and your family’s current and future tax liabilities. The guide is for information only and should not be construed as advice.

We have also included a brief reminder of the support packages available to businesses and individuals to deal with the impacts of Covid-19 >more detail on the business, individual and employer support packages announced by the UK and Scottish Governments

We are here to help, so when you’ve worked out your own priorities give us a call and we will arrange a suitable time to meet with you to discuss the tax and wealth planning strategies in more detail.

Click on the links below to read more or download a pdf version which can be easier to read on screen. If you would like a printed copy, we will have these available in June 2020 (print copies have been delayed to due the current lockdown restrictions).

 

In this year's edition:

Key moments in our financial life

Personal + family

Business

Succession planning

Business support – Covid-19

Property

Savings + investments 

UK Tax Rates 2020-2021

 

This year's edition also includes:

 

TPL life stages19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 18

 

Growing up, education and qualifying

 

Financial education is key from an early age.

 

From managing their pocket money to their first pay packet, to saving for their first holiday (without parents) and/or their first car.

 

Learning how to manage their personal finances and budgeting are among the key areas that you can help with.

 

Entering the workplace19942 MACO Tax Planning 30

 

 

As soon as next generation enter the workplace they should be saving towards their retirement and making regular contributions to a savings account or an ISA.

 

They could be saving towards a deposit for a flat, or to fund an extended career break, or insulating themselves against financial bumps in the road.

 

Whatever the goal, it is a good habit to develop early.

 

Taking a career break, staring a family and/or caring for a relative.19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 14

 

A career break for whatever reason is likely to result in a reduction in working hours and a knock-on fall in earnings.

 

You should prepare for this by taking into account the financial needs of everyone in the family and not just for the reduction in income experienced by the wage-earner during the career break.

 

 

Personal relationships, marriage, civil partnerships and breaking up

 

Couples can organise their income, investments and savings between them to minimise tax >strategies, tactics and formations that could potentially reduce your tax bills.19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 03

 

In the event of a divorce, you should speak to us about the potential financial consequences. A pension can be one of the largest financial assets that may need to be divided in a divorce settlement and the impact can be far reaching.

 

 

Planning for later life and those happy golden yearsMACO TPL dancing couple

 

Don’t put the annual statements from your pension provider to the bottom of the drawer. Look at the financial illustrations and projected income in retirement. Are you on the right trajectory to fund your lifestyle in retirement?

 

If you are business owner and have no succession plan, you should prepare to pay more inheritance tax.

 

You should also factor in to your later life plan how you will potentially pay for medical and or residential care if you become unable to look after yourself.

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This year's edition will help you to consider and plan for all of these issues and many more. But before you get started, you may well want to take our starter for tax taxing questions >10 taxing questions that will help you to focus on where you need to start

 

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Personal + family

Let us help you to ensure you don’t pay a penny more to HMRC than they are due.

 

Income Tax: UK

No changes from the last tax year. The personal allowance (PA), basic rate and higher rate bands will remain at £12,500, £37,500 and £50,000 respectively.

Remember your PA of £12,500 is reduced by £1 for every £2 of income over £100,000, which is an effective tax rate of 60%.

If you can reduce your income below £100,000 e.g. by making a pension contribution or a charitable gift, or transferring some of your income generating assets you could benefit from the full allowance.

Income Tax: ScotlandTax rates 2020 21

Income tax rates will remain the same but the threshold where the upper rate kicks in will be froze

The starter rate (19%) and basic rate (20%) band thresholds will be increased by inflation. The intermediate rate (21%), higher rate (41%) and additional higher rate (46%) band thresholds will be frozen.

As income tax is only partially devolved under the Scotland Act 2016, Scottish taxpayers will continue to pay income tax on their savings, interest and dividend income according to the rates and bands set by the UK Parliament.

Personal tax allowances + reliefs

The same income tax allowances will apply throughout the UK. See Tax Rates 2020-21 >download pdf version

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Strategies, tactics and formations to reduce your tax bills

StrategyMACO TPL business finance chart

1. Objectives + team talk. Give your financial, accountant or tax adviser an indication of your financial objectives and requirements over the coming year.

2. Game plan + execute. Your adviser will work with you to devise the best ways you can manage your investments, savings and finance your lifestyle needs, as well minimising your tax bills. They will also help you to plan and prepare for life’s financial curve balls.

3. Preparing for extra time + avoiding penalties. A good adviser will also help you to set up your estate and structure your investments to minimise future tax bills when it comes to the time to pass things on to the next generation.

 

Tactics

1. Reorganise your income producing assets to use up the lower tax band of your spouse, partner and/or family members.

2. Rearrange your investments and savings and consider changing your assets from income producing to capital growth.

3. Contributing to a pension is an opportunity for high earners to reduce your tax liability. There are some restrictions here, so do get in touch with us to discuss further.

4. Married couples and civil partners who are both basic rate tax payers and have not fully used their personal allowance can transfer 10% of the basic personal allowance to their other half. The wife / husband / partner receiving the transferred allowance will benefit from a tax reduction of 20% of the transferred amount.

5. Assets can be passed between couples without any CGT liabilities.

6. Transferring assets to joint names can also ensure that both spouses’ annual CGT exemptions are fully utilised in a sale.MACO TPL individual purple selfies

7. Any unused portion of the £325,000 Nil Rate Band (NRB) and the Residence NRB (£175,000) can be passed to the surviving partner on the death of the first spouse/civil partner.

8. Couples can combine their NRB and RNRB allowances to a pass on property worth £1 million free of IHT. It is a complex area with qualifying conditions and additional conditions for estates >£2m and requires expert estate planning advice.

9. This year’s ISA allowance remains at £20,000 which means you can save up to this amount tax-free.

10. The Enterprise Investment Scheme (EIS) investments offer CGT deferral and investments held for at least two years usually quality for relief from IHT.

11. Ensure you use the Annual Exempt Amount (AEA). Capital gains of £12,300 or less for individuals (£6,150 for trusts) are exempt from CGT.

 

FormationsMACO TPL Business property relief image

When it comes to investing in property, should you hold residential investment personally or in a company? The short answer is: it depends.

There are number of factors and options to consider, each having benefits and potential drawbacks depending on your circumstances. There is certainly no “one solution fits all”.

Deciding which formation e.g. limited company, partnership, sole trader, should be made with reference to the strategy you have for your property portfolio:

• How do you intend to fund the purchases?
• Who will own them?
• How do you want to extract income and how often?
• How do you intend to dispose of properties?
• What is your investment term – 5, 10, 15 years or more?

We will discuss all of the options with you and help you to select the best commercial and tax option and structure suited to your circumstances.

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Tax Planning for Life 2020-21 - pdf version (screen friendly version) >download a pdf

Family

One of the simplest ways to legitimately reduce tax is to hold assets and divide income with your spouse and children (and grandchildren).

 

Gift-wrapped income19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 11

You can gift a total of £3,000 per year which will be exempt from IHT. If you didn’t make a gift of this kind in the previous tax year, the threshold rises to £6,000.

A married couple doing this for the first time can combine their allowances and gift up to £12,000 to their children.

To celebrate the marriage of your child, consider giving the happy couple a gift of up to £5,000, or up to £10,000 if from a couple, which will again be exempt from IHT.

Grandparents can gift the happy couple up to £2,500 (£5,000 if from a couple) to reduce their IHT bill.

 

Unlimited gift allowance: Gifts out of income

If you are in a situation where you have an excess of income it would be prudent to make regular payments, for example, into a pension pot for your children and/or grandchildren, or to pay school fees.

Under the normal expenditure out of income exemption this will reduce your IHT bill by the total value of the gifts each year. There are conditions that need to be satisfied to ensure the gift benefits from the exemption.

 

Capital Gains Tax (CGT)

CGT is payable when you sell an asset, or gift it to a relative, and there has been an increase in the value of the asset. CGT rates on most gains are 10% for lower rate tax payers and 20% for higher rate tax payers.

Gains from a residential property that does not qualify for principal private residence relief are taxed at rates of 18%/28%.MACO TPL Tree Swing

From April 2020, payment of CGT from a sale of UK residential property must be made within 30 days of sale (from completion). Previously, CGT under self-assessment was not due until the 31st January following the end of the tax year.

 

Tax-free childcare

Tax-Free Childcare (TFC) is for working families, including the self-employed in the UK with children under 12 (or under 17 if disabled).

For every £8 you pay in, the UK Government will add an extra £2, up to maximum of £2,000 per child (£4,000 for disabled children). You can get an estimate of how much help you can get and apply on: www.childcarechoices.gov.uk.

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Business

There are numerous allowances and incentives to help businesses become more competitive. This section will help to make you aware of the main opportunities for minimising tax.

 

DividendsMACO TPL business planning icon

Any dividends you currently take in excess of the £2,000 dividend allowance will attract an income tax liability.

If you haven’t already considered changing the way in which you balance your income and dividend payments, consider the following:

• Married couples and civil partners should make sure they spread their taxable portfolios between them, where possible, to ensure they fully utilise each of their dividend allowances, personal allowances and basic rate bands.

• Taxpayers will see a tax liability of at least 7.5% basic rate (Higher rate: 32.5% and Additional rate: 38.1%) on dividend income received above £2,000. This makes sheltering taxable investments in an ISA all the more important as unlimited dividends can be withdrawn from an ISA tax-free and there is no CGT to pay in an ISA.

Before you decide what is best for you, get in touch with us and we’ll help you look at the tax impacts on all of the options available to you.

 

Directors Loan Accounts

These are a popular form of remuneration for owner-managers. However, they can give rise to a benefit in kind in the hands of the Director and tax liabilities for the company.

If proceeds are to be extracted in this manner, it is worth considering repaying the loan within 9 months of the end of the accounting period in which funds were withdrawn as this will ensure the company has no tax liability on the loan (currently 32.5%).

 

MACO TPL Thumps up sticker

Research + development = (even more) reward

If your company has been engaged in research or process improvements, you should call us to check if the associated expenditure qualifies for Research & Development (R&D) Relief.

Broadly speaking, SMEs can claim an additional 130% on qualifying (the definition is wider than you would imagine) R&D costs. The rewards available are an enhanced tax deduction or a cash payment from HMRC. The rate of tax credit for R&D expenditure for SMEs is 14.5% and for large companies it increased from 12% to 13% this year.

 

Corporation tax rate frozen

The rate of corporation tax will remain at 19% and will not fall to 17% in 2020, as had been planned.

 

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MACO TPL Selling Assets

 

Selling Assets

If you are thinking about selling a business asset and a gain is likely to accrue – before you do, make sure you tax advantage the sale. For instance, tax due on an asset sale can be delayed by reinvesting the proceeds in another qualifying asset.

If you sell your business you could, by reinvesting the proceeds in a qualifying trading venture, further reduce your tax bill on the sale. The proceeds must be reinvested in the 12 months preceding or in the 36 months following the disposal.

 

Business Asset Disposal Relief (BADR)

When considering the possible sale of your business, BADR formerly known as Entrepreneur’s Relief should be at the forefront of your mind. BADR allows the seller to access a 10% rate on the entire qualifying proceeds, thus preserving up to 90% of the sale proceeds.

Shareholders should also consider the advantage of transferring shares to a spouse/civil partner. Each person has a £1m lifetime limit for BADR this was reduced from £10m in the 2020 March Budget. As with many reliefs, there are a number of conditions to be satisfied.

 

Incentive to plan & invest

Capital Allowances (CAs) represent a valuable tax deduction for your business. They can be claimed on a wide variety of capital assets including plant, machinery, equipment, fixtures & fittings and vehicles.

There are a range of allowances available, including the Annual Investment Allowance (AIA), which offers a reduction in taxable profits of 100% of the allowable expenditure.

The AIA is £1,000,000 for all qualifying expenditure until 31 December 2020. Investment above this limit will attract the usual 18% or 6% writing down allowances (WDA). Electric charge points qualify for 100% WDA.

 

Structures and buildings19942 MACO Tax Planning 31

The annual rate of capital allowances for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2% to 3% from April 2020.

 

Incentive to go green extended

The Enhanced Capital Allowance for companies investing in electric vehicle charge points will be extended to 31 March 2023.

 

Share Options and Incentives

Share options can be commercially and tax-advantageous, to both companies and individuals. They can help to attract and retain talent, especially in ambitious early stage businesses. However, recent announcements from HMRC may prevent the anticipated tax benefits from being available. If you have an existing scheme in place, or are thinking about implementing a new scheme, please speak to us.

 

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Patent Box

Do you hold a patent? If so, you could reduce your tax bill. Profits from qualifying patent interests can be taxed at rates as low as 10% thus providing effective tax rate benefits.

 

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Succession Planning

Part 1: Thinking of selling or passing on the business?Outlook icon

Succession planning is a must for all business owners as sooner or later everyone wants or needs to retire.

If you are planning to retire, or realise the value from your business, in the next few years there are a number of options to considered, including:

• Sale to another shareholder
• Company buy-back
• Ownership transfer within the family
• Employee buyout
• Management buyout
• Trade sale
• Flotation
• Close the business

There are many tax, commercial and emotional intricacies and implications that will arise from each of these routes.

We can provide you with our assessment on the viable options to ensure that your tax exposure is minimised and a good outcome is achieved – for you, the business and the family.

 

Part 2: Inheritance tax - what should be on your agenda?MACO saving

During our discussion with you about the options for the business, we’ll also look at how you will finance the next stage of your life.

1. What will be your income, capital and lifestyle needs and requirements in retirement?

2. What asset protection strategies will you and your partner/spouse need to preserve your investments?

3. What strategies will you need to minimise any potential Capital Gains Tax liabilities?

4. Consider the use of trusts to reduce your tax liabilities.

5. Maximising the usage of the tax allowances, reliefs and incentives available to you and your partner/spouse.

6. Creating your estate plan and beneficiary mapping – what will they receive, who will receive and when will they receive, and any conditions you may wish to include.

7. Giving them the right start: financial planning meetings for your family members and your other beneficiaries.

 

Business succession Oct 19

5 Step Succession Planning - a guide >download a pdf

 

What do you want and what do you need?

Aim: Safeguard your business and personal assets, future income and your legacy.

Do you wish to transfer ownership and/or transfer management?

Aim: Is a transfer/sale viable? You may want to retain an involvement in the business or you may wish to walk away completely; on the other hand, you may wish to do a bit both.

What needs to be done to ready and prepare the business for sale/transfer?

Aim: Grow, prepare and nurture: the business, the successors, the family, the new owner and/or managers, and the price you receive.

What if things don’t go to plan?

Aim: We will scenario plan with you for a range of potential outcomes: business and personal, and we will help you to prepare alternative strategies if your preferred option doesn’t work out.

How will you maximise income now and post transfer?

Aim: Minimising your current and potential future tax liabilities – Capital Gains Tax and Inheritance Tax and investing your financial assets to maximise the returns. 

Even if you don’t begin immediately…

You will at least be armed with the facts, the financial impacts and have clearer idea of exactly what needs to be done, by whom and by when to achieve a successful transfer and/or sale.

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Gifting Assets

Gifting income producing assets to the children, such as shares in the family business or an investment property, can be a good way of reducing the overall family income tax bill.

This is also a good way to start your succession planning. Do take care to ensure there are no current or stored up CGT or IHT liabilities.


Estate Planning19942 MACO Tax Planning 41

If you don’t want to give direct you could consider a trust. With a little planning you can transfer asset(s) into a trust with no capital gains or inheritance tax consequences. A double tax saving in your favour.

There are some additional tax charges and costs related to trusts that may be applicable – they don’t suit everyone’s circumstances but they are worth a thought.

 

Will + POA = Life essential

Everyone should have Will and Power of Attorney as no one can predict when it will be needed. If you’ve not got these in place, take action today. We can help you to get started on the most important aspect of financial planning and personal responsibility.

 

 

MACO TPL coin stack purple

Business Property Relief (BPR)

If you meet the conditions, you can potentially remove the full value of a business – sole trader, partnership, shares in private company – from being subject to an IHT charge, either via lifetime gifts or on death.

 

Agricultural Property Relief (APR)

Similar to BPR, APR is available for farm land or pastures, woodlands occupied with agricultural land, buildings used in connection with agriculture and, in some cases, farm cottages and houses.

APR is complex, but in essence it is designed to prevent IHT forcing families to sell the main assets from which they draw income to pay the IHT bill. There are two rates available. If the conditions are not met for 100% relief, then 50% relief may apply.

 

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Enterprise Investment Scheme (EIS) investment doubles

From April last year, EIS offers 30% income tax relief on investments up to £2m, up from
£1m, subject to at least £1m being invested in knowledge-intensive companies and no CGT is payable when the shares are sold. EIS also offers CGT deferral relief.

Seed EIS is targeted at companies looking to raise funds in their first two years of trading. 50% income tax relief is available on investments of up to £100,000 and again no CGT is payable when the shares are sold. Conditions apply.

Corporate losses

Losses arising in an accounting year can be off-set against other income/profits in that year. Unused losses (other than capital losses) arising from 1 April 2017 onwards can in most cases be carried forward and set against the total profits of a company or another company within the same group.

The proportion of annual capital gains that can be relieved by brought-forward capital losses will be restricted to 50% from 1 April 2020, on similar lines to the corporate income loss rules.

MACO TPL construction digger

VAT: Reverse Charge – contractors take note

From 1 October 2020 the VAT Reverse Charge will be introduced in the construction sector. NOTE 8-6-20: the introduction of the scheme has been delayed until 1 March 2021.

The change basically means that the main contractor will become responsible for accounting for both sides of the VAT on their own VAT return. The sub-contractor will not receive the VAT element, only the net charge.

Subcontractors’ cashflow could be adversely affected as they will no longer be receiving Output VAT on their services which they could previously retain for several months before paying over to HMRC.

 

Contractors take note: IR35 changes delayed to April 2021

The UK government was planning to introduce a change to the legislation transferring the responsibility for tax of individuals working under personal services company’s (IR35), to the company the work is performed for. However, the change has been put back to April 2021.

 

 

Company cars – good incentives to go electric19942 MACO Tax Planning 35

Company car tax rose for all but the highest emission vehicles from April last year. The taxable cash equivalent percentages will all increase by three percentage points, subject to the current ceiling of 37% of list price.

All zero emission cars will attract a reduced percentage of 0% in 2020-21 and 1% in 2021-22, before rising to the 2% rate in 2022-23. For cars registered before 6 April 2020, there will be no further changes to percentages previously set.

Only zero emission vehicles will qualify for first year allowances from April 2021. The main rate of writing down allowance (WDA) of 18% will be given for cars with emissions up to 50g/km. The 6% WDA rate will apply to cars with emissions above 50g/km.

First year allowances for zero emission goods vehicles and natural gas and hydrogen refuelling equipment will be extended until 2025!

 

NICs increase19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 13

The primary threshold (employee contributions) for Class 1 NICs and the lower profits limit for Class 4 NICs will rise to £9,500 from April 2020. However, the secondary threshold (employer contributions) will not move in parallel, but instead it will increase to £8,788.

 

Auto-Enrolment contributions

The minimum employer contribution is 3% and the employees’ minimum contribution is 5% for the coming tax year.

 

Employment Allowance

The employment allowance will be increased from £3,000 to £4,000 a year for 2020/21. But it will be restricted to employers with an employer Class 1 national insurance contributions (NICs) bill below £100,000 in 2019-20.

Read more> Employment Taxes: changes for the new tax year 6 April 2020 

 

Salary sacrifice schemes


The tax and NIC advantage of these schemes was removed from April 2017, except for arrangements relating to pensions, workplace nurseries, cycle to work and ultra-low emission cars. Arrangements for cars, accommodation and school fees will be protected until 2021.

 

Having a party at work?

Expenses incurred by employers on the cost of providing a social function for employees are taxable except when the Annual Party Exemption applies e.g. Christmas party or annual Summer BBQ. One-off events e.g. retirement party do not qualify. If you provide two or more annual parties or functions, there is no tax to pay in respect of the party, or parties, for which total cost(s) per head do not exceed £150.

MACO TPL office party

Agricultural flat rate scheme – new entry and exit rules

New entry and exit rules for the agricultural flat rate scheme will be introduced from 1 January 2021. Businesses will be able to join the scheme when their annual turnover for farming-related activities is below £150,000.

They must deregister from it once such turnover exceeds £230,000 and register for VAT instead. Businesses with a turnover that exceeds £85,000 for non-farming activities will be ineligible for the scheme and will have to register for VAT.

 

Digital Services Tax – pass the parcel?MACO TPL devides mtd

A 2% levy on UK revenues of technology businesses will commence in April 2020. This levy is primarily aimed at tech companies that pay little or no corporation tax in the UK because their EU HQs are based in lower tax areas e.g. Luxembourg or Ireland.

A similar levy (3%) was introduced in France in July 2019. Amazon decided to pass this on to the small business sellers who use Amazon’s marketplace by increasing its charge for the service by 3%. They may well adopt a similar approach in the UK.

 

Think you’re safe from an investigation? Think again.

HMRC raised a significant amount of revenue through investigations. Last year, HMRC raised a record £34bn from challenging accounts, tax returns and business records. It’s not unusual for tax enquiries to last for well over a year and run up fees of thousands of pounds. Protect yourself against the cost of an investigation by getting in touch with us.

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Covid 19 maco6

Coronavirus Support available to Scottish businesses

The UK Chancellor and Scottish Government Ministers announced a package of temporary measures to support businesses and employees through the period of disruption which began in March 2020. There are some conditions that apply to the schemes, so get in touch with us to discuss and we’ll run over the issues you’ll need to consider.

Brief highlights of the support, funding and grants announced for Scottish businesses can be found below. For more detail and commentary >read more

 

Coronavirus Job Retention Scheme

All UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month >read more. Review our guidance on dealing with staff >read more

 

Deferring VAT payments and Self Assessment Income Tax payments

The Government will support businesses by deferring Valued Added Tax (VAT) payments that are due during the period 20 March 2020 to 30 June 2020 until March 2021 and Income Tax payments due in July 2020 under the Self-Assessment system can be deferred until January 2021.

 

Short term cashflow support Covid 19 maco3

The Coronavirus Business Interruption Loan Scheme is offering loans of up to £5 million for SMEs. The UK Government will provide lenders with a guarantee of 80% on each loan up to £5m. UK based businesses with a turnover up to £45m are able to access the scheme >read more. Applying for CBILS? >read our application tips and pointers

A new 100% UK Government backed bounce back loan scheme for small businesses will open for applications on 4 May through a network of accredited lenders. Small businesses will be able to borrow between £2,000 and £50,000. The Government will also pay any fees and interest for the first 12 months. There will be no repayments due during the first 12 months >read more

You should talk to us if you are considering applying for the loan and we’ll help you to prepare your business plan, financial projections and associated application. Get in touch with Euan Ferries, Corporate Advisory >get in touch

 

Support package for innovative firms

On 20th April the Chancellor announced a two-part support package for ‘innovative firms’, which means mainly start-ups and other venture capital backed business that would be unable to raise CBLIS or CLBILS finance.

The Future Fund will launch in May and be delivered with the British Business Bank. The fund will provide loans between £125,000 and £5 million, with private investors at least matching the government commitment. These loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid.

To be eligible, a business must be an unlisted, UK registered and UK based company that has previously raised at least £250,000 in equity investment from third party investors in the last five years.To begin with the government is committing £250 million to the scheme.

It will initially be open until the end of September, with its scale kept under review. 

 

Statutory Sick Pay relief package

SMEs and employers are able to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. Employers with < 250 employees on 28 February 2020 will be eligible. Some other conditions apply >read more

 

12-month business rates holiday

For all retail, hospitality, leisure businesses (and nursery businesses in England). The support in Scotland includes: Covid 19 maco2

• small firms receiving the small business bonus or rural relief will be eligible for a £10,000 grant.
• 12 months relief for businesses in hospitality, leisure and retail. Grants are also available for companies in this sector.
• a £25,000 grant for buildings in those sectors with a rateable value between £18,000 and £51,000. From 5 May 2020, small business ratepayers will be eligible for a 100% grant on their first property and a 75% grant on all their subsequent properties. You can apply for a grant via your Local Authority.
• All properties across Scotland will receive a 1.6% rates relief, thereby reversing the planned inflationary increase in the poundage from April 2020.

Read more> Scottish Government support for businesses and individuals.

Read more> Scottish and UK Government support for the Third Sector

 

Help for the self-employed

If you are self-employed or a member of a partnership and have suffered a loss in income, you can apply for a taxable grant worth 80% of your profits up to a cap of £2,500 per month. Your self-employed trading profits must be less than £50,000 and more than half of your income must come from self-employment to qualify for the scheme.

Grants are also available from Scottish Local Authorities for newly self-employed people and viable micro and small businesses to help through the pandemic >read more. You can seach for funding and grants available in Scotland here: www.findbusinesssupport.gov.scot

 

Other considerations

There are other ways to obtain rebates and tax reliefs as a way of getting cash into the business, admittedly they make take longer to obtain than some of the measures above, but they are worth considering: Claiming Capital Allowances, applying for a R&D Tax Credit.

Email banner 1 COVDownload a pdf summary of the various support, funding and grants announced by the UK and Scottish Government

 

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Property

There have been a number of changes introduced which provide another reminder that the tax benefits from property investments will not be as good in coming years.

19942 MACO Tax Planning 38

First time buyer or purchasing a second home?

There is no Land and Building Transaction Tax (LBTT) to pay on properties purchased by first time buyers in Scotland on the first £175,000 giving a maximum saving of £600.

First time buyers of residential property in England & Northern Ireland (NI), will pay no SDLT on the first £300,000 of the purchase price, provided the property value doesn’t exceed £500,000. In Wales, there is no Land Transaction Tax (LTT) due on the first £180,000.

The applicable SDLT, LTT and LBTT rates and an additional 3% (4% in Scotland) is due on the total price for relevant additional residential purchases over £40,000.

A 2% SDLT surcharge will be introduced from April 2021 for non-UK residents purchasing residential property in England and NI.

>Tax Rates 2020-21 for the applicable rates and bands: Scotland, England & NI and Wales.

 

Selling residential property?

The additional LBTT/SDLT on second homes and buy-to-lets may mean that exit routes in terms of selling unwanted rental properties could be restricted.

Married couples, civil partners, parent & child, in fact any form of joint ownership will now be treated as single units, meaning that the higher rate will apply if just one of the co-owners already owns another property.

 

Non-residential propertyMACO TPL ENG Scot flags

The lower rate for non-residential properties was reduced from 3% to 1% (2% in England & NI) and the upper rate increased from 4.5% to 5% from April 2019. The upper rate will apply to the portion of the purchase price over £250,000.

In Wales purchases of non-residential properties over £1m are taxed at 6%. >Tax Rates 2020-21 for the full table of rates and bands across the UK.

 

Commercial leases

From February 2020, the rates of LBTT for non-residential leases changed. A new 2% band will apply to any rental over £2m. Commercial tenants in Scotland will therefore see a significant increase in their LBTT bill.

The higher LBTT rate in England and NI is £5m, so again another area of divergence is emerging with Scottish companies bearing a higher tax cost than our southern and celtic cousins.

 

Capital gains tax (CGT) – residential properties

From 6 April 2020 there will be the following changes to CGT on residential property:MACO invest

1. UK residents making a chargeable disposal of UK residential property must deliver a
return to HMRC, and pay the tax, within 30 days following completion;
2. The estimated CGT due must be paid by the same date;
3. Lettings relief of up to £40,000 will only be available where the owner of the property is in shared occupancy with the tenant; and
4. The final period principal private residence exemption will be reduced from 18 months to 9 months. The 36‐month final period exemption will remain for disabled individuals or those in a care home.

 

Property tax relief

Landlords are no longer able to deduct their finance costs e.g. mortgage interest from their property income. Instead landlords will receive a basic rate reduction from their income tax liability for their finance costs from April 2020.

Full relief continues to be available for companies at 19%. Incorporation may be an option for some landlords, however, consideration must be given to the potential implications of LBTT and CGT.

 

Private residence relief

From 6 April 2020, lettings relief of up to £40,000 will only apply where the owner of the property shares occupancy with the tenant. The final period exemption for CGT will be reduced from 18 months to 9 months. There will be no changes to the 36-month final period exemption available to disabled individuals or people in a care home.

 

Reliefs extended19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 07

The reliefs available from the Annual Tax on Enveloped Dwellings (ATED) and 15% rate of SDLT were extended from April 2016 to include equity release schemes, property development activities and properties occupied by employees. The ATED annual charges increased by inflation this tax year.

 

Self-catering properties

Following the Barclay Review recommendation, Scottish Government has introduced a requirement for self-catering property to be actually let for 70 days in order to be considered non-domestic and liable for NDR rather than Council Tax.

 

Taxation of profits + gains

Individuals continue to be taxed on the annual profit arising from investment properties, at their marginal rate of tax (potentially 46% in Scotland).

Companies, on the other hand, pay tax on profits and gains at 19%. Individuals only suffer income tax to the extent that the profits are extracted from the company.

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TPL email banner 2020 21

Savings + Investments

Allowances & Reliefs

The same income tax allowances will apply throughout the UK. See Tax Rates 2020-21 >download a pdf copy.MACO TPL planning purple

Personal Annual Allowance (PAA)

The PAA effectively sets the maximum tax-efficient annual input to all your pension benefits, regardless of source. It started life in 2006 at £215,000, reached a maximum of £255,000 and is now just £40,000.

Lifetime Allowance (LTA) 

Your LTA effectively sets the maximum tax-efficient value of all your pension benefits. The current LTA is £1.073m and will be increased annually by the CPI rate at the beginning of each new tax year.

Tapered Annual Allowance (TAA)

The two tapered annual allowance thresholds for pensions will each be raised by £90,000 from 2020-21. The ‘threshold income’ figure will therefore be £200,000 and the ‘adjusted income’ figure will be £240,000.

This will help many people, such as medical consultants, who have faced large tax bills on extra pay. While the rate of taper is unchanged, the maximum annual allowance for the highest earners from April 2020 will be reduced from £10,000 to £4,000 – at an ‘adjusted income’ of £312,000 or more.

Personal Savings Allowance (PSA)

Savers benefit from the PSA which exempts the first £1,000 (£500 for higher rate tax payers) of interest from income tax. The PSA for additional rate tax payers is zero.

Money Purchase Annual Allowance (MPAA)

If you’ve flexibly accessed your defined contribution pension pot you may have triggered the MPAA. You can still make contributions to a pension and earn tax relief, but you will receive a lower annual allowance if you want to make further contributions. The MPAA for 2020-21 is £4,000.

 

Don’t dismiss annuities 19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 17

Ruling out annuities, as many have done, has maybe been a tad premature. Annuities provide income for life so if you plan to live to receive your birthday card from the Queen, you may want to have another look and, unlike those who have invested and suffered losses in the stock market, annuities don’t fall in value.

 

Thinking about setting up a trust?

A trust is a legal arrangement which allows assets, usually property or money, to be looked after by a trustee for the good of one or more beneficiaries. By setting up a trust you can, provide for both you and your partner, whilst keeping the assets intact for the benefit of your children and protect the family home from being sold to pay for residential care fees.

Trusts can also reduce your IHT bill by taking assets out of your estate. There are several types of trust to consider and although they do not suit everyone and there may be some additional tax charges associated with the trust, they are worth a thought.

 

Invest in ISAs19942 MACO Tax Planning 40

Up to £20,000 may be paid into an ISA in 2020-21 and the earlier you use your allowance in the tax year the potential for better returns is greater, as any investment returns you might make have longer to compound.

 

JISA limit doubles!

Junior ISAs (JISAs) are a tax-efficient way to build up savings for a child. Contributions of up to £9,000 annually (up from £4,368 last year) can be saved into a cash JISA or a stocks and shares JISA.

 

LISA: 25% annual bonus available

Any adult under 40 is able to open a new Lifetime ISA (LISA) with a 25% annual bonus paid by the government on every £1 invested up to an annual contribution limit of £4,000.

LISA Contributions can continue up to the age of 50 and funds can be withdrawn tax-free from age 60, or earlier for the purpose of buying a first home. If you are buying a home with someone else, you can both take advantage of separate Lifetime ISAs.

 

Investment in Venture Capital Trusts (VCTs)

An indirect investment in small companies enables the taxpayer investor to benefit from 30% Income Tax relief on investments of up to £200,000 with a CGT exemption on the sale of VCT units.

From April 2019, the proportion of the VCT funds that must be held in qualifying holdings increased from 70% to 80% and the period for reinvestment of gains on disposal of MACO performancequalifying holdings increased from 6 to 12 months. Conditions apply.

 

Social Investment Tax Relief (SITR)

SITR offers income tax relief to investors who invest in new shares or qualifying investments in a social enterprise. Investors can receive an income tax deduction of up to 30% of the value of the investment (up to a ceiling of £1m).

 

Protect yourself against the unexpected

You should never be without sufficient financial protection whether you’re married or living with a partner, with family or without, or even single. That way should an event such as bereavement, serious illness, unemployment or incapacity occur, you’ll at least have the comfort of knowing yourself and your loved ones are covered financially.

 

Are you a key person?

Business owners should also consider key person assurance and shareholder/partnership protection. Don’t leave your business’s future health and prospects to chance, protect the business against unexpected events and risks.

 

Combine your pension pots19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 08

Disparate pension pots can be consolidated to purchase commercial property.

 

Corporate bonds

The income from fixed interest funds and corporate bonds in many cases is subject to interest tax, not dividend tax.

The first £1000 (£500 for higher rate payers) of any interest received from e.g. bank accounts, corporate bonds will be income tax free, which provides an additional source of tax-free income.

 

Consider a SIPP as part of your succession planning

Self-Invested Pension Plans (SIPPs) provide the benefit of tax free dividends within the fund. If you have retirement savings and do not require access to the pot until you are 55, there are significant tax benefits available to you.

For instance, most people can invest up to 100% of earnings (effectively capped at £40,000 in this tax year) and receive tax relief.

Tax Planning for Life 2020-21 - pdf version (screen friendly version) >download a pdf

10 taxing questions to help you to get your planning started19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 01

 

1. Have you used this year’s ISA allowance (£20,000) and/or made any other tax efficient investments e.g. EIS, SEISs and VCTs before April 2021?

2. Could you transfer income or assets to your partner, children or grandchildren to minimise higher and additional rate taxation next year and to maximise tax-free savings limits?

3. If you are over 55, have you received advice about the options available to you for drawing your pension savings?

4. Business owners: have you considered the amount and timing of dividend and bonus payments this year?

5. Are you about to make a significant capital purchase for the business – have you considered the allowances and grants that may be available to you?rocket icon

6. Has your business undertaken any R&D this year (the definition of R&D is wider than you may think)? If so you may be entitled to claim R&D Tax Credits.

7. Are you planning to retire, or realise the value from your business, in the next few years? If so, you should get to know what options are available to you now.

8. Are you investing enough in your pension (or LISA) this year – is there room for a top up payment to reduce your tax bill?

9. Property: should you hold residential investment property personally or in a company? Incorporation could be more attractive for some.

10. Have you considered how you will pass on your estate taking advantage of the reliefs so that the next generation receive the full benefits you intended?

 

Give us a call in when you are ready to discuss. Our tax and financial advisers are poised, ready and prepared to receive your challenge!

Get in touch with your usual adviser at Martin Aitken or give one of our tax and financial services team a call.

Tax Planning for Life 2020-21 - pdf version (screen friendly version) >download a pdf

 

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