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Opportunities ahead of the Budget and the new tax year

Opportunities ahead of the Budget and the new tax year

Ahead of the Spring Budget on the 3rd March and the new tax year on 6th April, there are steps that taxpayers could consider to help them achieve their ‘Big Picture’ Plans. We have outlined a few of these below:

Locking in CGT rates and IHT reliefs

We outlined in September the potential changes to the Capital Gains Tax (CGT) and Inheritance Tax regimes (IHT). In short, the direction of travel suggests increases in CGT rates and changes to the availability of CGT and IHT reliefs over the coming years. While these reliefs are available, in many circumstances, it may be attractive to ‘lock in’ current rates and reliefs.

For example, currently shares in a trading company can generally be passed down to future generations tax efficiently due to the availability of CGT and IHT reliefs. If succession is on the minds of business owners, now is an ideal time to consider and implement a change in ownership with potential changes to the availability of IHT and CGT reliefs on the horizon. We have worked with many family businesses to implement succession plans that are beneficial from a commercial and tax perspective.

Where IHT and CGT reliefs are not applicable, taxpayers may wish to ‘lock in’ current tax rates by accelerating a sale process that is currently underway. If a company is being liquidated or struck off it is likely to be advantageous for this to be implemented prior to potential changes in CGT rates and reliefs.

Taxpayers may also wish to consider making gifts to family members or to a family or employee trust to ensure that current reliefs can be claimed.

Tax efficient profit extraction from a family-owned business

The main options for taking profits out of family-owned business are salaries, dividends and pension contributions. Each has their advantages, and each will have an optimum level to ensure personal and business objectives are met for each tax year. We have helped many family-owned businesses to review their remuneration strategy to ensure that it is optimum from a tax perspective, taking advantage of tax rate bands, allowances and reliefs. A review should be undertaken well in advance of 5 April 2021 to ensure the appropriate strategy is in place.

ISA’s, pension contributions, gifts and charitable giving pre 5 April 2021

Higher earners will have seen their available pension contribution allowance recede over recent years, reducing the options for building up tax advantaged savings. Annual pension contributions should still be reviewed, including the possibility of utilising unused allowances from previous years. In addition, or as an alternative, ISA’s and the equivalent for children, JISA’s, can be used as a tax efficient savings wrapper. As part of their long-term savings strategy taxpayers and their families should consider utilising their annual ISA and JISA limits prior to 5 April 2021 and take appropriate investment advice.

Taxpayers may wish to consider making gifts. Gifts of up to £3,000 per year can be made without any adverse IHT implications. Gifts in excess of this amount could potentially form part of a taxpayer’s estate, and advice is recommended where significant gifts are planned.

Charitable giving is another option, either cash or assets, each giving rise to different tax implications. We can advise on ensuring that gifts to charities are made in the most tax efficient manner, to ensure the maximum impact for the chosen charities.

Call to action

If any of the ideas above sound relevant to you, or you have any other questions or concerns ahead of the upcoming Spring Budget or new tax year, or you just want to discuss how we can help make your dreams come true and get you closer to your ‘Big Picture’ in 2021, please contact us.