1. Treat yourself to an electric car – and buy it in your company.
The benefit in kind associated with an electric vehicle provided to a director or employee is zero of the vehicle’s list price. On 6 April 2021, this increases to 1% of the list price (and up to 2% from 6 April 2022). Up to 31 March 2021, the company qualifies for 100% first year capital allowances on the cost of a new and unused car which can be set against your taxable profit in full. There is no road fund licence payable for zero emission cars either. That’s a nice Christmas present.
2. Maximise your pension contributions
Pension contributions within the pensions annual allowance still benefit from full personal tax relief. How long this will continue is subject to much speculation. Review your pension allowance and carry forward position. You may have capacity to pay employer contributions to your pension from your company in which case you will also save on your corporation tax bill for the accounting year the company makes contribution.
And for those of you who “don’t like pensions” remember that pensions can buy commercial property. Your pension can even buy commercial property from you or your company. This could be a way of achieving personal or corporate liquidity.
3. Outsource your accounting and tax compliance
We believe that there are many opportunities to come out of this crisis – and, as Entrepreneurs, we’ve no doubt that you are already aware of that and ready to jump on deals.
The last thing you want to do when opportunity comes your way is worry about the routine bookkeeping and compliance side of your business. Having someone there to just “deal with things” on the finance side – discussing structuring, liaising with your solicitors, sorting out options to tax, filing returns, reporting to your investors – can be invaluable. It will also leave you free to do what you do best. Explore whether outsourcing would work well for you.
4. Crystallise latent gains on assets
Capital Gains Tax rates are set to increase – it’s pretty inevitable given the gap between income tax rates (up to 45%) and CGT rates (20% for directly held commercial property and 28% for residential). So, if an asset is not a long term hold perhaps consider marketing now. Or perhaps gifting to your children; or transferring in to trust – without holding over gains.
5. Gift or sell assets to the family whilst values are low
Are you worried about the long term inheritance tax liabilities attached to your estate? And the risk that the ability to gift without an immediate lifetime inheritance tax charge may, at some stage, be removed by this government?
Perhaps you hold direct property or shares in a private commercial property investment company and have seen the property values reduce. Arguably property share valuations will now reflect significant discounts to net asset value, if the quoted real estate sector is anything to go by. Would now be a good time to gift or sell those holdings to your children?
Outright gifts of assets to family members (or others), incorporation/disincorporation of business, carving up of assets on divorce, “swaps” of commercial assets etc. will all typically involve CGT (or CT) based upon “open market values” of the assets involved, at the dates of transfer.
Where asset values have fallen, these proposals can be substantially easier and more affordable (if not tax-free altogether, depending upon the current marketplace in those assets).
6. Consider settling a trust
Transfers of assets into trust, typically to be held there for the benefit of the next generation(s), can achieve a number of valuable objectives. When well-designed, the trust enables the older generation to keep control of the assets they want to pass down, to protect those assets from risks (e.g. matrimonial), and to put the value outside their estate for IHT purposes (avoiding a 40% charge on death). There is also the ability to holdover capital gains which would otherwise crystallise on the transfer of assets in to discretionary or life interest trusts. The trust may be subject to a small IHT charge every 10 years, depending on values at each 10 year anniversary, but even this is often capable of management.
We are, however, limited as to how much value we can inject into a trust in any 7 year period. Above a cumulative £325,000 (the value of our “nil rate band”), assets transferred into trust give rise to an unwelcome 20% lifetime IHT charge. When asset values are low, however, it becomes easier to get more into the tax-free limit and still avoid the “entry charge”. This works very well where those assets values are likely to recover in the short or medium term.
7. Issue growth shares to family members
The use of growth shares, if properly structured, can have no immediate tax cost but a long term IHT benefit. You may consider changing your Articles of Association and issuing new share categories to your family, so that they can participate in part of the company’s future growth.
8. Sell subsidiaries with nil value to family members
Consider whether there is any potential for your company to simply sell subsidiaries with nil net assets to family members, pending future uplift, but be wary of any degrouping charge that could arise.
9. Separate trading from investment
Review your property activities and make sure you keep companies undertaking trading activities under separate ownership from property investment companies. This will maximise your chance of benefiting from tax reliefs applied under certain circumstances to trading but not to investment or “mixed” companies and groups.
10. Give generously
If you have made charitable donations under gift aid (all those donations to friends and colleagues for the latest charity challenges), then of course you can claim higher rate tax relief on your self-assessment tax return. And if – as may well be the case – you have not yet submitted your tax return for the tax year ended 5 April 2020, which is due for filing at the end of January, then you can relate gift aid donations made now back to the prior tax year on your return – reducing both the final payment balance and the payments on account bill. This might not be worth a lot, unless you are considering a substantial donation. By making it now you could potentially get a significant reduction to your January tax bill – both the balancing payment and the payment on account.
How can we help?
In this short article, first published in the November issue of Qandor Magazine, we touch broadly on a few considerations to maximise your financial position before the end of the year. However, all tax advice is individual and needs to be tailored to your circumstances. To discuss your current situation in more detail, contact Heather Cunningham by email here or phone on 0161 905 1616.