How can I prepare for tax changes ahead of the Budget?
Let's face it, none of us enjoy paying tax. Likewise, nor do we want to miss out on the opportunities to save on our tax bill. Nothing is more certain that death and taxes but thankfully we have the option to plan for both. Rishi Sunak, our new Chancellor, will deliver the UK Budget on the 11 March. With a real possibility of major changes to our tax regime, you may be asking yourself: how can I prepare for tax changes ahead of the budget next month?
What can I do now to position myself tax efficiently ahead of the Budget?
The potential removal of higher rate tax relief on pension contributions and on entrepreneur's relief are not new ideas. Indeed, there have been rumours on these tax changes for years.
The worry is that the rumours have resurfaced over the last couple of weeks. The announcement for planned large expenditure on infrastructure & HS2 by government points to worrying signs that these rumours may become a reality to increase tax revenue for these projects.
The opportunity, therefore to make use of the 'carry-forward' pension contribution allowances has never been more important. Pension 'carry-forward' allows for contributions over and above the annual allowance limit of £40,000. You are allowed to carry forward unused allowances from the previous three years.
Another opportunity also arises; using 'carry back' income tax relief through EIS investment, which allows you to reclaim income tax (dividend, PAYE, general savings and rent returns) for this and 2018/19 tax years.
The threat
Inheritance tax (IHT) planning is also under review by the government. Javid requested a paper on IHT in July 2019 from the Office of Tax Simplification. In October 2019, Javid said IHT was "on his mind".
Now with Sunak as Chancellor, we need to be prepared for wholesale changes to our tax regime. The suggested changes could include potential reduction of the 7 year rule to 5, changes to gifting allowances and scrapping taper relief. Although these changes are on the whole are positive, the impact on existing non-revocable IHT structures, such as Gift Trusts and Life Cover, could mean you will be at a disadvantage.
These are some of the headline changes we could expect to see at this year's UK Budget but the details are likely to be much more complicated when looking at your individual circumstances.
If you would like help to get ready for tax changes in the Budget next month, please do not hesitate to contact us at tax@mirandusaccountants.co.uk.
