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The time of year comes when tax planning should be high on everyone’s agenda. The end of the tax year is only a few months away and there are a few simple steps you can take to prepare for it.
The accountants for entrepreneurs at Alexander and Co. have put together a guide with their most important tips. Let’s take a look at their recommendations and see what you can do to make sure you’re ready to end the tax year on top form.
First of all, please note that the tax treatment will depend on the particular circumstances of the individual and may change in the future.
1. ISA allowance
If you are over the age of 18 your current ISA individual allowance is £ 20,000. ISAs are great for protecting your savings or investments from taxes, and make these accounts useful for building long-term wealth.
You can split your annual allowance between a cash ISA and a stock ISA. This gives you the best of both worlds and protects your wealth no matter how you go about it. It is important to remember that unused certificates will not be renewed after April 5, 2021.
When you are an investor, some of your investments can pay off. If you own a limited liability company, you can also pay dividends to yourself.
The tax-free allowance is up to £ 2,000 per year. It’s important to make sure that you get the most of it when you are able to.
3. Capital Gains Tax (CGT)
This can be an important area of your tax planning. Currently you can earn up to £ 12,300 in profits within the tax year before paying CGT. This tax can apply to corporate or real estate investments. So make sure that your allowance is used properly.
The specialized team of accountants for entrepreneurs at Alexander & Co explains: “Unfortunately, your capital gains tax credit cannot be carried over to the new tax year. However, there are ways that you can effectively use the rest that you have in the months to come. For example, you may want to sell an asset to make up for a loss of capital in the same year. Additionally, married couples are able to take advantage of the mutual allowances by transferring assets before they are sold. “
It may be worth seeking professional advice on the most tax efficient options based on your circumstances.
4. Inheritance tax (IHT)
Inheritance tax (IHT) can be very costly if not prepared in advance. An easy way to plan taxation with your estate is to make sure you are not consuming any gift allowances.
Currently you can give away up to £ 3,000 per year with no IHT impact. You can carry over unused allowances from that year to the new tax year, but they will be forfeited if not used by April 6, 2022.
5. Income tax and social security
Each has a personal allowance of £ 12,500 for income tax. Unused allowances cannot be carried over to the next year. So check to see if you have reached this threshold.
6. Spouses and life partners
Tax planning with your partner offers many advantages. If they are not a taxpayer or if they pay a lower tax amount than you, they can transfer up to 20% of their unused personal allowance to you. This could easily save you up to £ 250 in taxes.
All assets can also be placed under the partner’s name in the lower tax area. This can help reduce tax liability and, as a bonus, there is no CGT to be paid when transferring an asset to your partner.
Your annual pension contribution during that tax year can be 100% of your earned income up to £ 40,000. This number may decrease if you have a high income or have previously received benefits.
It is also important to keep in mind that you also have a lifetime retirement benefit of £ 1,073,100. In contrast to some areas, you can carry over your unused pension money over to the next three tax years.
8. Corporate Income Tax
The main rate will remain at 19% for the next tax year. This can make tax planning a little easier for your company. Just make sure you have included this rate in any cash flow projections for the company.
9. Tax breaks for research and development
This last tip is pretty nuanced when it comes to tax planning. However, once you have a business it can be helpful to determine if you qualify for this relief. Many business owners mistakenly assume that this is not an option.
As long as you are doing a project that aims to increase knowledge, improve a product or service, or resolve uncertainties in a business process, you can get this relief. The criteria are pretty broad, so it’s worth checking out if you’re eligible.
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