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End of tax year: traps to avoid

End of tax year: traps to avoid

Published at 9:01am 21st February 2020.

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BDB Financial

With the end of the UK tax year fast approaching, we hear from a local financial planner on the common tax pitfalls and how to avoid them.

  • The UK tax year ends at midnight on Sunday 5th April 2020.
  • Harrogate financial planners BDB Financial have some useful advice.

The ever-changing tax systems in the UK are not always easy to follow, and traps can arise that leave households with hefty bills to repay.

But like with most things, knowledge is power and being aware of the issues can go a long way towards avoiding them - but what are the more common traps to avoid?

We heard more from BDB Financial, a leading financial planner in Harrogate, about how people can get ahead of rule changes and avoid pitfalls when it comes to tax:

Rental properties

If you own a buy-to-let property, there are some upcoming changes to the rules with regards to what you can offset against rent for tax purposes. 

The interest around these mortgages is changing, which is sure to catch some people out. As a buy-to-let property owner, you won’t be able to deduct any of your mortgage interest payment from your rental income before paying tax.

The new buy-to-let tax system has been phased in in the last few years and will be in full force in 2020.

Door with key
Door with key

Child benefits

If your household has an income of more than £50,000 a year, then you’ll have to pay back some of your Child Benefit in the form of extra Income Tax.

"Generally speaking that should be caught by your tax return but I've heard a few horror stories where it hasn't and people have had five years worth reclaimed.

"It's presented some households I know of with some fairly uncomfortable bills to have to face up to paying."

Andrew Brook-Dobson, Managing Director at BDB Financial

You will be required to pay back 1% of your family’s Child Benefit for every extra £100 you earn over £50,000 each year, and all of it if earning more than £60,000 per year.

Child with parents
Child with parents

Final salary pension schemes

People who are part of final salary pension schemes or defined benefit pension schemes may fall into a trap in that what they have already contributed is not immediately obvious and they're forced to pay tax as a result.

"The most common example that we come across is doctors and hospital consultants, where actually it isn't clear what their deemed contribution has been and they're facing tax charges as a consequence of that."

Andrew Brook-Dobson, Managing Director at BDB Financial

Doctor with clipboard
Doctor with clipboard

Losing personal allowance

Once someone’s income goes above £100,000, their tax-free personal allowance is “tapered” away, at a rate of £1 for every additional £2 the person earns.

So someone on £100,000 who receives a £1,000 pay rise must pay £400 in income tax, but will also lose £500 of their personal allowance.

"There are a couple of things that can be done... If you earned £110,000, you could pay £10,000 into your pension which will effectively bring it down so you can keep your personal allowance.

"The other thing you could do is give £10,000 in a gift to charity."

Andrew Brook-Dobson, Managing Director at BDB Financial

Managing your tax

When it comes to getting around the common pitfalls with tax, Andrew Brook-Dobson at BDB speaks about the importance of planning opportunities such as ISA's and pension contributions:

"ISA's are a fantastic vehicle for people to either save or invest - you can put up to £20,000 per year into an ISA. It's worth doing if you've got money to put aside.

"We also still have tax relief on pensions to incentivise people making provisions for later in life."

BDB Financial office in Harrogate
BDB Financial office in Harrogate

Want to find out more? Get in touch with BDB Financial online, on Facebook or give them a call on 01423 855680.

Ben Groom from Stray Lifestyle found out more from BDB Financial Managing Director Andrew Brook-Dobson:

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