COVID-19: Pre year-end personal tax planning update

Pre year-end tax planning is more important than ever given the impact of COVID-19.

Tax planning is underpinned by asset values, and making use of allowances and reliefs that are available in a tax year. Our recent year-end tax planning article deals with measures that you would normally be considering at this point of the tax year.

With sudden falls in asset values, it is important to consider possible actions in even more detail:

1. If gains have been realised since 6 April 2019 on which tax would normally be due on 31 January 2021, can anything be done to set recent falls in value against gains to help reduce the tax bill? 
   Selling assets that have fallen in value could crystallise a loss and reduce the tax that would otherwise be due. The loss needs to be realised before 6 April 2020 to set against gains earlier in the tax year. You’ll need to wait at least 30 days before you buy back the same stock for such planning to be effective, unless the purchase is made within your ISA or by a spouse or civil partner, in which case the repurchase can be made immediately.
   
   
2. Falls in value may present a good opportunity for Inheritance Tax (IHT) planning 
   A gift of chargeable assets (such as shares or property) to family is considered a disposal for Capital Gains Tax (CGT) purposes, and the value of the gift is normally subject to IHT if the gift is not survived by seven years. Lower asset values mean lower incidence of capital gains at up to 20% for lifetime gifts to individuals. For transfers into Trusts it is these lower gift values (rather than the potentially higher values on death) which are potentially subject to IHT at up to 40%. Make the gift before 6 April 2020, and you could benefit from 2019-20 tax allowances as well as tax savings on lower asset valuations.
   
   
3. Transfers into Trust within the nil rate band? 
   In broad terms, only £325,000 of value (the nil rate band) can be transferred into a Trust every seven years per person. With low asset values, it may be possible to transfer more assets into Trust than might otherwise have been possible. Trusts are a great way of protecting future asset value from generational IHT charges, and CGT on assets transferred into Trust can also be deferred. See our briefing note, Tax planning for Trustees for more information.
   
   
4. Claiming to reduce payments on account? 
   The self-assessment tax system sees taxpayers pay 50% of their estimated tax bill on 31 January during the tax year, and 50% on 31 July following the tax year, with a 'balancing payment' made on 31 January following the tax year once the final numbers are known and the tax return submitted.
   
   Self-employed taxpayers will have paid 50% of their 2019-20 estimated tax liability on 31 January 2020. For those whose 2019-20 results are adversely impacted by COVID-19, it may be possible to claim to reduce this tax payment and get tax back from HMRC. This will be particularly relevant to those with 31 March 2020 year ends who have suffered a decline in trade, but for those with December (or other) year ends, it might be an appropriate time to consider a year-end change to March and understand what impact this might have on your tax payment/repayment profile.

Depending on personal circumstances, there are many tax liabilities that are linked to asset values and trading conditions. Speak to your normal Crowe contact to help you through the challenges and identify opportunities to help reduce your tax burden.

Take stock of your financial affairs

Whether this is from a business or personal financial perspective we should all use this time to pause, take stock of our individual and family positions and plan appropriately, our insight looks at the areas you may need to consider.