We provide expert advice and support to individuals and businesses
Always aware of your tax situation
You know there are certain times of year when you need to think about tax. But if you really want to keep your tax bill to a minimum, consistent, ongoing tax planning can make a big difference.
With our help, you can make informed choices about factors that could affect your tax bill. We can advise you on strategies that will make the most of the tax reliefs, allowances and credits available to you.
Supporting you in many ways
Our tax planning services relate to many aspects of your business, and cover areas such as:
- cash and profit extraction
- land and property
- share schemes
- choice of business structures
- succession and sale
- transaction planning
- trust and estate planning
- CGT Planning
- Section 24 mitigation
- wealth preservation
- Raising finance.
We begin with a careful evaluation of your financial situation, discussing your future plans and goals to help define the right plan of action. As independent advisors, we’re always working with your best interests in mind, bringing you tax-saving opportunities with a strong commercial basis.
As property is a capital asset, you’ll need to be aware of two main tax implications: Capital Gains and Income Tax on profits.
We’ve developed the Commercial Property Purchase Plan, to help you buy and own a commercial property cost-effectively.
To find out what’s likely to be the best option for your situation, our specialist tax consultancy team can guide you through a three-step process:
Step 1: Understanding the information
Step 2: Processing the information
Step 3: Recommending a structure.
Whether you’re starting a business, looking to change your organisation, or simply want to make sure your company is set up in the most tax-efficient way, we can help you choose the best business structure.
Your decision could have long-term implications, and we’re here to help you make the right one. We can support you through the whole evaluation process, including:
- considering your options, to quantify the savings, rewards, costs and risks
- presenting our findings to help you make an informed decision
- planning to implement the structure
- documenting the process
- Helping you with disclosure and returns.
As well as the traditional business structures, the best options for you could involve trusts, joint ventures, or a mix of different types of entity. We assess all of these for you, and ensure your new structure works within your overall tax planning.
Effects of Section 24
The controversial Section 24 tax relief changes for buy-to-lets are causing a stir among many landlords, while many remain in the dark about what the changes are and how they will be affected.
The income tax relief that landlords can claim on their buy-to-let properties’ mortgage payments is being overhauled by Section 24 of the Finance Act, a measure which was first announced in the Budget back in 2015. The changes, which mean that landlords will no longer be able to claim a reduction on their income tax payments by offsetting the mortgage interest costs, are being phased in over three stages.
As of April 2017, landlords can only claim back 75% of their financing costs – which will apply when they file their January 2019 tax returns – and the amount will reduce to zero from April 2020, to be replaced by a tax credit equivalent at the basic rate of tax (currently 20%), meaning many landlords’ tax bills could increase.
However, according to research from Kent Reliance, 15% of buy-to-let landlords do not understand the Section 24 changes and are not planning on taking any action to counteract the effects.
What Can Landlords Do?
One way of getting around the tax relief reduction is for landlords to set up limited companies through which to operate their properties. This route has become increasingly popular recently, with a fifth of landlords (19%) already operating through a limited company and a sixth (13%) planning to do so in the future, according to Kent Reliance.
If the investment property is owned by a limited company, it means that mortgage interest payments are treated as a business expense and can therefore still be offset against profits – and corporation taxes on profits are currently 19%, which is lower than income tax. Last year, Kent Reliance reported that 70% of buy-to-let applications for purchase were done through a limited company, compared to 45% in 2016.
Transferring ownership of the property to a spouse is another option that could help some landlords to balance the effects of the tax change.
Adrian Molony, sales and marketing director at OneSavings Bank, said: “Many landlords have sought to move to a limited company structure, or transferred ownership to a spouse but it’s not a one-size-fits-all solution so it’s vital that landlords affected seek professional tax advice.”
Are Limited Companies Always The Answer?
The research from Kent Reliance found that 58% of smaller landlords (those with one to five properties) did not believe they would benefit from either of the above measures, compared to 27% of large landlords (those with more than 20 properties).
One of the downsides for some landlords switching investment properties from personal ownership to limited companies is that, according to Love Money, the transaction would be viewed as a sale and purchase, meaning stamp duty and capital gains tax could apply.
Borrowing for limited company buy-to-lets is also generally more expensive and can be harder to obtain compared to standard buy-to-lets, and the associated costs involved with setting up and running a limited company in the first place must also be considered by any landlord thinking of making the switch.
25 TOP TAX PLANNING IDEAS
We are here to ensure that you have made the best use of reliefs and allowances available, hence a there are a variety of tax reliefs and planning ideas currently available for Entrepreneurs/Businesses and Individuals. Here are our Top 25 tax planning ideas in summary format. Should you need to discuss in detail or require advice on any of our tax planning idea, please do not hesitate to contact us.
ENTREPRENEURS, BUSINESSES AND COMPANIES
1.PROFIT AND CASH EXTRACTION
With the top rate of income tax currently at 45% for some types of income, it is important to think about the most tax efficient way of extracting profits from a limited company. For the director/shareholder there are several ways of doing this including taking dividends instead of salary, company contributions to a pension and receiving tax efficient benefits. For example if the timing of dividends can be controlled then they should be taken in the following tax year to ensure tax liabilities that arise are paid a year later proving tax cash flow advantages. Even for un incorporated businesses, timing of profits and business expenses can be altered to achieve maximum tax cash flow advantages.
Capital allowances can be claimed on a wide range of qualifying capital assets including plant and machinery, fixtures and fittings (known as integral features) and cars. A variety of allowances are currently available some of which give an immediate reduction in taxable profits of 100% of the allowable expenditure. Capital allowance claims should be maximised where possible claiming all available allowances and thinking carefully about the timing of expenditure. Professional advice should be sought to maximise the capital allowance position, particularly in the case of property sales, purchases, refurbishments and new developments. If need to know if you qualify for 100% first year allowances and therefore reducing you trading profits in turn by 100%, then please contact us and we would be more than happy to help.
3.BUSINESS PROPERTY RELIEF (BPR)
BPR is one of the most valuable tax reliefs available, potentially removing the full value of a business, be it that of a sole trader, partnership or shares in a private company from the charge to inheritance tax, either on lifetime gifts or death. A number of conditions must be met in order to qualify for BPR and we can advise you on this and also support to you with what further steps need to be taken to rectify the situation before the IHT event.
Entrepreneurs’ relief can offer significant tax savings to individuals and certain trustees when selling shares or the whole or part of a business. Where a claim is made, gains on qualifying business assets suffer a very low effective tax rate of only 10%. Certain conditions must be met to ensure that this relief can be applied and we can always review your case to see if you qualify and if also advice you on appropriate steps to ensure that you qualify in the future.
5.RESEARCH & DEVELOPMENT CLAIMS
Broadly speaking, your company or organisation can claim an additional 125% on qualifying R&D costs if it undertook an R&D project that seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. The definition of research and development is much wider than many people think. You could therefore be eligible for enhanced tax deduction and not realise it and therefore it is worthwhile contacting us to see if you qualify.
Are you a company that is holding a Patent! If so then you must read on. The new Patent Box regime came into effect on 1 April 2013, it presents companies that are holding patents and using them in their business with the opportunity to significantly reduce their tax burden. Under the new regime profits from qualifying patent interests will be taxed at rates as low as 10% delivering cash tax and effective tax rate benefits. Companies should take action now to understand how to benefit from the regime and what business changes might be advantageous.
7.CONTRIBUTING TO A PENSION
Pension contributions are tax efficient for both employers and employees/directors. Company contributions to an employee‘s pension will attract corporation tax relief and will be free of income tax and national insurance for the employee (up to certain limits). Individuals can claim relief from income tax and national insurance for contributions to personal pension schemes (again, subject to certain limits).
Pension contributions can be made via number of ways to obtain tax relief such as via Small Self-Administered Pension Schemes (SSAS), Self Invested Personal Pensions (SIPP). Auto-enrolment has pushed employers to provide a pension for their employees but a business owner may want more flexibility in the way they save for their own retirement.
Directors and owners of small businesses should think about what’s best for them and their company when picking a pension. While the merits of a SIPP are well-known, small owners could find the specific benefits of a SSAS enable them to save and boost their business. We can provide tax advice on pension contributions to your specific needs.
8.FAMILY TAX PLANNING
Structuring of a family owned business in a commercial yet tax efficient way can maximise the tax reliefs available. Tax should also be an important consideration in succession planning. If you are thinking of selling your business to key management or passing it to the next generation of family members then care needs to be taken to ensure the tax planning is done in the right way and any pitfalls are avoided.
9.INCENTIVISING YOUR STAFF
Clearly, the retention of key staff is of critical consideration for businesses of any size. With cash flows being restricted in these difficult times, consideration can usually be given to granting share options to employees. Certain tax-approved options schemes such as Enterprise Management Incentives (EMI) are potentially very tax-efficient and a good incentive for key workers. The EMI is a share scheme designed to help small, ambitious companies retain the right talent to grow. By rewarding staff you’re looking to recruit or retain with tax advantaged share options, you offer employees a reason to work for you. If you need more information on EMI, then please feel free to contact us.
There are many ways to raise finance for your business of which one of them is via the Enterprise Investment Scheme (EIS) which is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Subject to specific conditions being met, individuals are able to obtain income tax and capital gains tax reliefs on investments in newly issued shares in unquoted companies.
While EIS has been around going on two decades, its success has led to the government’s more recent introduction of the Seed Enterprise Investment Scheme (SEIS), which specifically targets companies in their first two years looking to raise that first £150,000 in funding. Should you need to raise finance or need to learn more about EIS or SEIS, with the application of tax advantages to you, please contact us.
11.CHOICE OF INVESTMENT VEHICLE
For a new or growing business the choice of investment vehicle (limited company, LLP, partnership, sole trader) is important from a commercial and tax perspective. As the business changes and grows the choice of investment vehicle should be reviewed, as what suits the business at one particular stage may not necessarily be appropriate for the life of the business. We can provide advice on incorporating your business if to a Limited company status and review your tax position on this thereof.
If you have losses arising from business interests or investments should undertake a review to ensure that such losses are claimed in the most efficient way. For example, then can be carried back to offset against prior year profits, resulting in a tax refund if tax was paid in the prior year, carried forward to offset against future profits or even relived sideways against your other income subject to certain conditions being met. Please contact us for further information.
Rising Rents Could Be A Side-Effect
In a study conducted by the Residential Landlords Association (RLA) which surveyed 3,300 landlords, 70% of respondents said that the mortgage interest relief changes would reduce their profitability – and of that amount, 62% believed Section 24 would diminish their profitability by 20% or more.
Most landlords surveyed (67%) said that they planned to put rents up in order to cover their extra costs, while 25% were thinking of selling properties to reduce their borrowing, and a further 25% intended to leave the sector completely as a result of the changes. The knock-on effects mean many tenants could see rents pushed higher, while the availability of rental properties could decrease over the coming months and years as the regulation takes effect.
While every landlord will be affected to different degrees by the new rules, it is vital that everyone in the buy-to-let industry is aware of and fully understands what Section 24 will mean for them.
Year-end tax planning can be a complex undertaking. Starting early ensures you are in a good position to achieve your tax saving goals.
There are many tax reliefs and allowances available for individuals, families and company owners. In our personal tax planning guide, we’ve covered some of the allowances you should consider making use of before the end of the tax year and some areas to bear in mind in your longer term financial planning for you, your family and your business.
We’ve summarised the areas you need to consider and action before 5 April 2019 in below, as well as other areas to bear in mind for you longer term planning.
1.0 Your Allowances
Tax allowances for individuals are normally used within the tax year or lost. Often the allowances are overlooked because in isolation they are small, but utilised together, especially in a family scenario, they can generate real tax savings.
2.0 Scottish Taxes
The main taxes that are likely to affect you as an individual are the Scottish Rate of Income Tax (SRIT) and Land and Buildings Transaction Tax (LBTT). If you’re a business owner it’s important to consider the most tax efficient way to draw a salary from your business. LBTT is a complex area but there can be ways to mitigate the cost to you.
3.0 Charitable Giving
Charitable giving can be an effective way to manage your taxes. Taxpayers who Gift Aid effectively have a bigger slice of income taxed at basic rate.
4.0 Selling Your Property
Restrictions to Lettings Relief is coming into force in April 2020. If you are considering sell your former main residence in the future, it may be wise to consider doing this sooner.
5.0 Domicile Changes
if you’re going to become deemed a UK resident by April, it’s important to review your taxes before then as there may be tax planning opportunities.
6.0 Pension Planning
Scottish taxpayers have different income tax rates from other UK taxpayers, but can save tax by making pension contributions. Make sure you use your annual pension allowance before 5 April 2019!
There are a range of investments options that might appeal to you if you are impacted by the the lifetime, annual or tapered annual pension allowances.
8.0 Making Tax Digital
Whilst MTD is not expected to become mandatory for VAT registered businesses with a turnover below the threshold before 2020, it is advisable that all businesses, trusts and landlords, evaluate their situation now.
9.0 Selling Your Business
As a business owner, when the time comes, it’s important to plan the exit strategy for you and any other owners to ensure you do so in the most tax efficient way.
Got A Question
If you are looking to action any of these tips in our guide or if have any other queries about tax and planning your finances for your future, our Private Client Tax team are here to help. Get in touch with a member of the team for an initial chat now.
How Churchill Tax can Help?
We provide expert advice and support to individuals and businesses purchasing residential property in Scotland. We advise clients on the LBTT liabilities that arise upon purchase, and how to mitigate these liabilities whilst ensuring full compliance with the Scottish tax rules.
For new clients, we specialise in critically examining their recent residential property purchases to establish whether they paid the correct amount of LBTT under the four different charging regimes that now apply to properties. Where we conclude that an incorrect amount was paid we then advise our clients on the actions that may be taken to remedy the position with Revenue Scotland, including the recovery of overpaid land tax within the short repayment window permitted by the law .
We do not promote nor advocate land tax avoidance schemes. Instead we seek to efficiently plan our clients’ property tax affairs by only utilising government approved statutory tax rules that are contained within the Scottish tax legislation, so that our clients only pay the amount of tax intended by the Scottish parliament.
A protective claim for tax credits should be considered, particularly for self-employed individuals with fluctuating profits. This is even more evident given the current economic climate. Claims for tax credits can only be backdated by one month and need to be made on an annual basis. Please contact us so we can advice if you qualify for tax credits.
Married couples should consider transferring income generating assets to their spouse in order to fully utilise their respective tax free personal allowances. This exercise is also effective where one party pays income tax at the higher rate/additional rate and the other is a non taxpayer/basic rate taxpayer. Married couples should review the ownership of income producing assets such as portfolio investments, rental property, bank accounts or private company shares and seek advice on how ownership can be varied so income can be shared to best post tax effect.
15.ADDITIONAL RATE OF INCOME TAX
Personal pension contributions and gift aid donations can reduce the amount of income tax high earners pay at the additional rate of 45%. If you are tax payer at the additional rate of tax at 45%, please contact us so we can discuss ways of reducing your income tax burden.
Individuals with a statutory total income in excess of £100,000 could look to make personal pension contributions in order to preserve their personal allowance. Salary sacrifices in exchange for tax efficient company benefits are also effective for these purposes and should be considered as part of your tax planning strategy.
17.EXEMPT TRANSFERS FOR INHERITANCE TAX (IHT) PURPOSES
With the nil rate band having been frozen in recent years, gifting during lifetime has become increasingly important. The typical exempt transfers for IHT purposes include (1) the annual transfer of £3,000, (2) small gifts of up to £250, (3) gifts in consideration of marriage and (4) normal expenditure out of income. For further formation on IHT planning, please contact us
18.TAX EFFICIENT INVESTMENTS
Investors can reduce their annual income tax bills by making investments through Venture Capital Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes. Capital gains tax deferral relief/exemption may also apply. Please do contact us so we can advise further.
19.MAIN RESIDENCE ELECTION
Where two or more properties are occupied concurrently as a home, the taxpayer should ‘elect’ which property is to be treated as the main residence in order to mitigate any potential capital gains tax charge in the future. If you require further help on this, please contact us
20.JOINTLY OWNED PROPERTY FOR MARRIED COUPLES
An election on ‘Form 17’ can be a useful tax planning tool. Such a declaration enables a married couple to be assessed on the income arising from jointly held property in accordance with their actual beneficial interest, as opposed to having the income taxed upon them equally.
21.DEEDS OF VARIATION
Such a variation to a deceased’s estate could be an important tool to both the estate itself and beneficiaries for inheritance tax purposes. These should however not be relied upon and should be considered as a reserve as opposed to a substitute for appropriate tax planning. There is a two year time limit for varying a deceased’s estate.
Transfers of chargeable assets between married couples are exempt from capital gains tax (CGT). Taxpayers sitting on a potential capital gain should consider transferring the asset in question to their spouse, where the spouse has unrelieved capital losses brought forward or where capital losses can be crystallised. Transferring assets into joint names can also ensure that both spouses’ respective annual CGT exemptions are fully utilised on a future disposal
23.INHERITANCE TAX PLANNING (IHT)
IHT planning can significantly reduce the value of assets passed to the next generation. It is never too early to make an IHT plan and individuals are caught out far too often because IHT planning is not considered early enough. Taking early action and having a plan for the distribution of assets or maximising the generous reliefs, could mean that IHT is mitigated and the next generation can benefit from the full value of the estate passed over. Generally, those who are retired with wealth in excess of the nil rate band (or double nil rate band for couples) should put in place a plan to deal with IHT. Should you require further help on this, then please contact us.
24.UK TAX RESIDENCE
The statutory residence test came into force with effect from 6 April 2013. Without a thorough understanding of what the test means, there is a danger that some of the rules can be easily misinterpreted or over looked. This can have devastating results if an individual who thinks they are non-UK tax resident turns out at the end of the year to have been UK resident, and is therefore potentially taxable on their worldwide income. Those who are in any way uncertain of their residence status under the new rules should not wait until the end of the tax year before seeking advice. Also, individuals should not simply rely on being in the UK for fewer than 90 days a year. In some cases, spending as few as 16 days in the UK can lead to a UK tax resident status.
25.GIFT AID DONATIONS
Gift Aid remains a valuable tax relief, on unlimited amounts donated to qualifying charities at the donor’s marginal rate of tax. For those who make charitable donations, it is of benefit, both individually and the charity, to ensure that tax relief is maximised. This may mean the donor making contributions to a holding account or charitable trust in years when their tax rate is high. Even an election can be made to carry back donations to the previous year, if the carry back rules are met so that relief can be made to minimise tax exposure.
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