While 2020 was a strange year by anyone’s measure, some may find it stranger still that Christmastide may see more people than ever before complete their UK self assessment tax returns.
This is because numbers have been climbing over the past few years, with 2019 marked as a record year that saw 3,003 people completing the annual filing on Christmas Day alone, according to data from HM Revenue & Customs (HMRC). This marked a 15% increase over 2018, when just over 2,500 people filed their financial records while enjoying their turkey and presents.
Boxing Day saw an even larger number – 9,254 people – file their returns. This was up by 9% from 8,465 in 2018, a figure that was itself a 10% increase on 2017, and a marked increase on the +1% filing on Christmas Day in 2018 versus 2017.
This meant a total of 12,257 people filed their returns on Christmas Day and Boxing Day in 2019.
What is important to bear in mind, when looking to file any tax returns, is the fact that income is taxable and cashflow need not be. A careful assessment of your wealth structuring could mean your family can enjoy more financial freedom than it currently does.
And while Santa and you are making your lists, and checking them twice, we wanted to highlight some pointers to help you plan ahead and be able to rejoin any family festivities.
It’s easy to procrastinate about our pensions and, while a considerable number of us haven’t changed our investment strategy from the default scheme, it’s worth remembering that any contribution that you pay into your pension, including a self-invested personal pension (SIPP), reduces your level of taxable income.
You can currently put up to £40,000 in annually – in lump sum sand regular contributions paid by you and your employer – although the limit may be as low as £4,000 if you have accessed any of your pensions or earn over the (now higher) threshold of £240,000 a year.
And while the lifetime allowance has increased to £1,073,000, the limit for the tax year returns being filed now is £1,055,000. As before, savers are entitled to put in up to £40,000 per annum during their working life but, if the money paid in and any investment gains exceed the lifetime allowance, hefty tax charges could be applied once you withdraw the money and/or celebrate your 75th birthday. The lifetime allowance excess charge may also be relevant to the beneficiaries of your pension, with the onus of the calculation and payment of a charge resting with the executors of your estate to carry out.
While ISAs are not declared on self assessment tax forms, as there is no need to disclose any income and gains due to the nature of ISAs, you will need to disclose enterprise investment schemes and venture capital trusts. This is because you are entitled to tax relief on any investments held within these structures, given that there is no tax relief at source.
While the government has updated its usual toolkit, which is available here, even the government admits that “tax agents and advisers play an important role in helping their clients to get their tax returns correct” in the opening line of the PDF download. Given the dramatic change in the economic backdrop to the pandemic, many business owners may have made a loss from trading, on the disposal of a capital asset or within a property rental business before 5 April 2020 and may be able to claim loss relief. This includes individuals, partners and trustees and should be reported in your self assessment tax return.
While most of us tick the gift aid box when giving to registered charities, higher and additional rate tax payer can also include your donation on your tax return as HMRC enables you to claim back 20% or 25%, respectively, of your (gross) contribution.
In addition, it’s worth looking through the subscriptions linked to your profession – be these related memberships, events or trade magazines – that may be used for tax-relief purposes too.
Furthermore, you can claim for the memberships of some national organisations. Annual memberships from English Heritage, London Zoo, the National Trust and the Royal Horticultural Society, among others, can all be tax deductible, depending on the type of membership you take out. Yes, these amounts are quite small, but it may also spur you into joining another organisation to provide support following a very difficult year.
Given the annual allowance for dividend income received is £2,000 per person, it is worth looking to defer dividend income on the grounds that this can push your income level above a particular threshold. For example, if taxable income is based on basic tax rates, you would not have to pay tax on the first £1,000 of savings income received, while higher rate taxpayers do not have to pay tax on their first £500 of savings income.
While Nedbank Private Wealth does not provide tax advice, we can work with your other advisers – or introduce you to one – and work to develop a cashflow plan. Not only will this help you understand the impact of your current expenditure on your future plans, it will also set you on the right path for the next year, enabling you to manage more of your finances in a tax-efficient manner.
According to HMRC, there were around 700,000 taxpayers racing to hit 2020’s 31 January deadline, having left their tax return submission to the last day. Of these, 26,500 people submitted their return in the final hour between 11pm and midnight. And, of course, we recommend that you are not in this category, not least as fines become due and it may not just be any left-over turkey causing a bit of heartburn.
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)1624 645000 to speak to our client services team.
If you would like to find out more about how we can help you with wealth planning support, please contact us on the same number as above, or complete the contact us form using the link below.
Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Nedbank Private Wealth does not provide individual tax advice, and instead works with clients’ existing advisers or can provide an introduction if needed. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.
Pippa is a paraplanner in the wealth planning team. Working closely with our head of wealth planning, her focus is to undertake reviews of each client’s situation and to develop a bespoke financial plan for them. She works in partnership with our private banking teams to ensure each client’s plan is kept up-to-date and on track with their individual needs.
Pippa is currently working towards chartered financial planner status with the Chartered Institute of Insurance. Prior to joining Nedbank Private Wealth, Pippa worked for an independent financial advisory firm.
Paraplanner
Pippa is a paraplanner in the wealth planning team. Working closely with our head of wealth planning, her focus is to undertake reviews of each client’s situation and to develop a bespoke financial plan for them. She works in partnership with our private banking teams to ensure each client’s plan is kept up-to-date and on track with their individual needs.
Pippa is currently working towards chartered financial planner status with the Chartered Institute of Insurance. Prior to joining Nedbank Private Wealth, Pippa worked for an independent financial advisory firm.
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