As the end of the tax year approaches there are certain planning opportunities for taxpayers to be aware of.

Income Tax

There are several thresholds to avoid otherwise you may pay more tax than you need to. If you can control the timing of your income such as bonuses or dividends then be aware of the following:

There is no tax on the first £5,000 of dividends, and this ‘Dividend Allowance’ is reducing to £2,000 from 6 April 2018. Make sure you use the allowance for 2017/18 where possible.

For those receiving interest there is a Personal Savings Allowance (PSA) of £1,000 for basic rate taxpayers, and this is £500 for higher rate taxpayers (there is nothing for additional rate taxpayers).

Where income exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income in excess of this amount. The full personal allowance is therefore lost if income exceeds £123,000. You may look to defer a special dividend until the next tax year to make sure your income does not exceed £100,000.

Those claiming child benefit should be aware that the High Income Child Benefit Charge applies where income for either partner in a household exceeds £50,000. If you can ensure income is allocated equally between partners and spouses to keep each of you below £50,000 then this could be worthwhile.

The income calculations for the above are based on adjusted income, and this can be reduced by making payments to charity through gift aid, or personal pension contributions. Advice should be sought when making pension contributions as there are a number of factors to consider and the calculations are complicated.

For married couples it may be possible to make a marriage allowance transfer. One spouse needs to be a basic rate taxpayer with the other being a non taxpayer. The maximum saving from making the claim is £230.

Capital Gains Tax (CGT)

The Annual Exemption for 2017/18 is £11,300. There is no option to carry forward any unused exemption; it may therefore be worthwhile crystallising gains in the year to use this exemption. Watch for the “bed and breakfasting” rules which can apply to shares sold and repurchased within 30 days.

The rates of CGT are 10% for gains which fall within the £33,500 basic rate band and 20% for gains in excess of this.

For gains on residential properties the rates are 18% and 28% respectively (note that commercial properties are taxed at the lower rates of 10% and 20%).

Gains which are eligible for Entrepreneurs’ Relief (ER) are taxable at 10%, subject to a Lifetime Limit of £10m. Only certain assets qualify for ER, such as the sale of a business carried on by a sole trader or partnership, or shares in certain unlisted trading companies.

Other points

• The tax relief on mortgage/loan interest for residential buy to let investors is restricted for higher and additional rate taxpayers. This restriction started in April 2017 and is being introduced gradually over four tax years. By 2020/21 tax relief on all mortgage/loan interest will be restricted to tax relief at 20%.

• The Inheritance Tax (IHT) nil rate band is frozen at £325,000 until 5 April 2021. An additional relief has been introduced gradually from April 2017 for homes being left to direct descendants. From April 2018 a married couple will potentially be able to transfer an estate (including their home) worth up to £900,000 to their children.

• The Annual Allowance for pensions remains at £40,000 (gross). Care should be taken when making contributions as there are a number of other factors to consider such as having sufficient ‘relevant earnings’ and also the lifetime limit.

For further reading please see the MHA Year End Tax Planning Guide.

If you would like to discuss the above blog in more detail, or you would like to speak with a member of our team, please contact Tom Carter or call 01772 821021 to be put in contact with a member of our Tax and VAT team.

What happens when a director, shareholder or partner in the business loses mental capacity? It’s important to consider what would happen to your business if you were unable to manage the finances. Eve Carter, head of private client services at Harrison Drury Solicitors explores. 

When running a business, it’s important that you think about what would happen if you became incapable of dealing with the running of the company and its day-to-day financial management.

It may be that your colleagues know what needs to happen but unless there is designated legal authority in place, it’s not quite that simple. It may become impossible to access bank accounts, pay salaries and suppliers and the effect of the disruption could be significant.

It is possible to make a business or commercial Lasting Power of Attorney (LPA) to provide for this eventuality. You can choose attorneys specifically to deal with your business assets and ensure business continuity in the event that you are incapacitated.

What is a Lasting Power of Attorney? 

An LPA is a legal document which enables you to appoint a person or persons to act on your behalf. There are two types of document, one for property and affairs and one for health and welfare decisions. It is customary to make an LPA appointing family members to look after personal affairs, whereas a commercial LPA appoints professionals and colleagues to deal with business affairs. Each document specifically defines its area of use.

What if I don’t make an LPA?

If you don’t have a LPA in place and you do lose capacity an application will need to be made to the Court of Protection for the appointment of a deputy. This deputy will act on your behalf under the authority of the court. This is an expensive route and can take six months to put in place and there are no guarantees of who the court will appoint.

Is a business LPA he best solution for me?

The first step in preparing a business LPA is a review of the company’s articles of association, and partnership or shareholder agreements:

• Sole trader – your business is not likely to have a separate legal entity from you and appointing an attorney under a business LPA will be an effective way to provide continuity for your business.
• Partnerships – The partnership agreement will need to be checked. Some partnerships already include a provision for what will happen if one of the partners becomes incapacitated, so an LPA may not be needed. If the wording is inadequate, an LPA can be made to carefully complement the provisions already in place and offer additional protection.
• Directors of companies: articles of association – the company’s articles of association may call for the termination of a director if they lose capacity. This is often done to protect the company’s interests. If such a provision isn’t included, you may want to seek advice and consider including it.

Sole directors and directors of small companies are not likely to include a termination clause as there would be no one left to run the company. In these circumstances a business LPA is advisable.

The second step is identifying a suitable attorney. This should be someone that you trust and is familiar with the business and market you operate in. They need to be able to make the decisions needed for the-day-to-day running of your business.

Your attorney needs to ensure that they fully understand the responsibilities. They will need to take out personal liability insurance, so they are protected while acting on your behalf and commit to follow health and safety policies.

Business succession can be a wider issue and after a review of your company’s structure you may decide that restructuring would be more suitable for your company. Harrison Drury has a team of specialists who can review your company’s legal structure and work to provide the best solution for succession planning. Get in touch with Eve Carter on 01772 737379.