Farms and Estates update: Year-end tax planning our top tips

Published: Sunday 14 February 2021

As another tax year end is on the horizon now is a good time to ensure full use is made of annual tax allowances and reliefs for the year to 5 April 2021.

Below are our top tips to consider in advance of the new tax year.

  1. As the personal allowance is reduced by £1 for every £2 of net income over £100,000, those with income of between £100,000 and £125,000 could end up paying tax at an effective rate of 60%. If your income is close to the threshold it may be worth considering ways to reduce your taxable income. This could be achieved by making pension contributions, charitable donations, deferring income into 2021/22 or transferring income producing assets to your spouse. Bringing forward repairs or equipment purchase will also reduce taxable business profits.
  2. Taxable income exceeding £50,000 for the year could lead to a claw back of child benefit under the high income child benefit charge. Once taxable income reaches £60,000 the benefit twill be lost in full. Reducing, deferring or transferring taxable income as described above could help to preserve this benefit.
  3. Up to £1,250 of your personal allowance can be transferred to a spouse or civil partner, if neither of you are higher rate taxpayers, by virtue of the marriage allowance. This is of benefit where one spouse has income of less than the personal allowance (£12,500 for 2020/21), with a tax saving of up to £250 per annum.
  4. If possible, you should make full use of your ISA allowance, which is £20,000 for the 2020/21 tax year and up to £9,000 in a junior ISA for children under 18. Although the investment itself does not attract any tax relief, any income generated from it will be tax free. 
  5. If you have any surplus cash, you could look to make a tax efficient investment. There are various options which typically offer income tax relief at 30% (but can be as high as 50%) and with tax free capital gains on disposal. It may also be possible to carry back an investment made in 2020/21 to 2019/20 to accelerate tax relief.
  6. Owner managed businesses should review their remuneration package in advance of the new tax year and look to utilise their tax bands as far as possible. A combination of low salary, high interest and dividends could result in tax free income of up to £20,500 (and double that for couples) in 2020/21 if structured appropriately and depending on the individual’s circumstances.
  7. The capital gains tax annual exemption for all individuals for 2020/21 is £12,300, which you should try and use, if possible. Consideration should be given to the transfer of assets between spouses such that both utilise their annual exemptions on a subsequent disposal or deferral into 2021/22 where the allowance has already been used.
  8. Consider utilising your pensions allowance, which enables you to contribute up to £40,000 for 2020/21, plus any unused allowance for the previous three tax years. Note, however, that if your adjusted income is more than £240,000, the allowance reduces by £1 for every £2 above this threshold down to a limit of £4,000.
  9. Gifts of up to £3,000 per year can be made free of inheritance tax. Any unused allowance from the previous year can also be gift. This means a couple can make a gift of up to £12,000 with a potential inheritance tax saving of £4,800.

If you would like to find out more, please get in touch with your usual tax contact or call 01242 680000.

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Sue Birch
Sue Birch
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