For many, the impact of the Coronavirus has been more financial than physical and being confined to home has provided little by way of distraction from the movement of the global markets. Lock down has for some been a time for contemplation and an opportunity to attend to financial housekeeping that we may otherwise have been putting off. With this is mind, now might be a useful time to ask yourself a number of questions relating to your tax affairs.
Taking stock of a fall in value
Lower values make it an excellent time to consider lifetime gifts by fixing low values for Inheritance Tax (IHT) purposes and reducing exposure to Capital Gains Tax (CGT).
- Have you been considering outright gifts or settling assets into trust? Are you a Trustee considering transferring assets to Beneficiaries? The suppressed values can reduce the potential tax charges.
- Is now the time to establish a Family Investment Company (FIC)? A FIC ensures future growth and income falls within the corporate structure and potentially outside of one’s personal IHT estate
- Have you incurred investment losses that you wish to crystallise? In particular, losses in unquoted trading companies, including EIS/SEIS investments, may be able to be offset against your taxable income
- Could it be the right time to acquire an asset that you have previously thought about acquiring?The current climate could result in a lower acquisition price and associated costs including stamp duty, if applicable.
Investment income is likely to look very different this year with government support making it challenging for companies to sustain dividend levels.
- Will reduced income have an impact on existing planning? For example, you may be regularly making gifts from surplus income (as part of your IHT planning) – if income levels have fallen, this will need to be reviewed
- Has the balance of your income as a couple changed? Perhaps consider equalisation in order to optimise tax rates and allowances.
Pension tax relief continues to be a very valuable as a way of reducing your overall tax liability each tax year.
- Did you remember to make your 2019/20 pension contribution? Consider utilising your brought forward allowance.
- Do you have a SIPP? Is now a good time to make additional cash contributions into the tax-free wrapper?
Residence and Domicile
Your travel plans may have been affected and as a result this may have had an impact on your UK tax residence status and overall tax position.
- Are you closely monitoring your days in the UK and how this may affect your residence position? Is it possible for you to take advantage of the COVID-19 rules on exceptional days?
- Does your domicile status require consideration?
- If your UK income has been reduced is there scope to remit funds to the UK at basic/higher rates rather than the additional rate?
Inheritance tax reviews, wills and tidying up paperwork
Now is an excellent opportunity to get your paperwork in order and have an overall IHT review.
- Is your Will up to date?
- Does the movement in your investments affect legacies and liquid assets for settling IHT liabilities?
- Are you administering an estate? Has there been a fall in value? Can you reclaim IHT?
HMRC progress with existing enquiries is slow and applications to the First Tier Tribunal (FTT) have been delayed.
- If you are mid-enquiry is it advantageous to push for conclusion?
- If you have recently reached a settlement with HMRC and are making regular payments, have you thought about making a request for deferment or a time to pay arrangement for a forthcoming tax liability?
HMRC have recently been writing to taxpayers about VCTs and other tax efficient investments.
- Are your VCT/EIS/SEIS records up to date?
- Do you know if any of your investments still qualify or perhaps have become of negligible value?
If you would like to discuss any of the areas mentioned above, please get in touch with your usual Campbell Dallas contact or one of our tax experts.
The information in this update should not be regarded as financial advice. This is based on our understanding on 30 June 2020. Laws and tax rules may change in the future.