8 New Year Tax Resolutions for 2018

Happy New Year!

At this time of year, we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April. Here are 8 tax planning tips to get you started:

1. Pension planning

For most taxpayers, the maximum pension contribution is £40,000 each tax year, although this depends on your earnings. This limit covers both contributions by the individual and their employer.

The unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current, but then lapses if unused. For higher rate taxpayers the net cost of saving £10,000 in a pension is only £6,000 but this higher rate relief may not last forever.

2. Passing on the family home

New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your will. We can work with your solicitor to make sure your will is tax efficient.

From 6 April 2017, an additional nil rate band of £100,000 is now available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. This additional relief is restricted if your assets exceed £2 million. These rules are fairly complicated but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

What about downsizing to a smaller property?

The new inheritance tax relief for passing on the family home is protected even when you downsize to a smaller property. For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000, they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. You can even sell up completely and move into a rental property and still get the inheritance tax relief!

3. Consider making regular gifts out of surplus income

Staying on the subject of inheritance tax planning, why not consider setting up a standing order to family members? Such regular gifts can be outside of the scope of inheritance tax provided they are made out of surplus income and not out of capital. It would be necessary to demonstrate that you are left with sufficient income after tax and living expenses to maintain your normal lifestyle. Unlike the £3,000 annual inheritance tax allowance, there is no monetary limit for regular gifts out of income, provided the conditions are satisfied.

4. Tax relief for energy saving technology

For a number of years, there has been a generous 100% tax break for businesses that install energy saving technology in their premises. This is in addition to the £200,000 annual investment allowance for plant and machinery.

The technology that qualifies for this 100% tax break includes energy efficient boilers and energy saving lighting systems. This is set out in the government’s energy-saving technology list which is updated each year. It was announced in the Autumn Budget that new technologies were being added but also certain items such as Biomass fired warm air heaters would no longer qualify from 1 April 2018.

Where the expenditure has the effect of creating or increasing a loss for corporation tax purposes, the company can obtain a repayable first-year tax credit. This credit, based on the amount of the loss attributable to the energy-saving technology spend, reduces to 2/3 of the corporation tax rate from 1 April 2018. Thus the relief reduces from 19% to just 12.67% from 1 April 2018.

5. Relief from additional 3% SDLT charge

Much of the focus in the Autumn Budget on Stamp Duty Land Tax (SDLT) concerned the abolition of the duty for first-time buyers of property up to £300,000.

There was also welcome news for those involved in property transfers. Usually, a 3% supplementary SDLT charge can apply when an interest in a second property is acquired. However, this charge will now not apply in certain situations. For example, where a court order on a divorce or dissolution of a civil partnership prevents someone from disposing of their interest in a main residence; or if one spouse buys property from the other spouse.

6. Advisory fuel rate for company cars

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 December 2017. Where there has been a change the previous rate is shown in brackets.

Engine Size Petrol Diesel LPG
1400cc or less 11p 7p
1600cc or less 9p
1401cc to 2000cc 14p (13p) 9p (8p)
1601 to 2000cc 11p
Over 2000cc 21p 13p (12p) 14p (13p)

Note that for hybrid cars you must use the petrol or diesel rate. You can continue to use the previous rates for up to 1 month from the date the new rates apply.

7. No indexation of company gains after December 2017

Indexation allowance was introduced in the 1970s to provide relief from paying tax on inflationary gains based on increases in RPI. The relief was abolished in 1998 for individuals and trusts, and replaced with taper relief. However, it was retained for companies. The Autumn Budget announced that indexation for corporation tax would cease for disposals from January 2018 onwards, although indexation up to December 2017 would be retained.

Although the change will apply to all chargeable assets owned by companies, it will have a significant impact on property investment companies where indexation allowance acted as a shelter from inflationary gains.

8. Come along to our Investment and Tax Seminar

Join us on 8th February for our Investment and Tax Seminar which will cover some of the above in further detail along with even more top tax tips!

For further advice on any of these topics, please contact a member of our tax team on 01903 234094.