Private tax planning for musicians

With so many changes being made to the UK tax system, Douglas Adams’ character Hotblack Desiato may have had the right idea when he said he was ‘spending a year dead for tax reasons’ in the cult sci-fi series, The Hitchhikers’ Guide to the Galaxy. Our experts have come up with their own guide to the various tax changes which may affect the way you structure your finances.

Residential property

• Rent-a-room: from April 2016, the rent-a-room relief rate increased from £4,250 to £7,500, its first rise in almost 20 years
• Stamp Duty Land Tax on additional properties: From April 2016, a 3% surcharge on SDLT is payable on second properties where the buyer already owns one residence
• Financial interest relief: From April 2017, changes will be phased in over a four year period that restrict the relief for finance costs, including for example, interest on mortgages and loans to buy furnishings, to the basic rate of income tax

Income tax

• Dividends: from April 2016, a £5,000 dividend allowance was introduced and the notional tax credit abolished. There are both winners and losers here. Any basic rate taxpayers who have more than £5,000 of dividend income may well find that their tax liabilities will increase, while some higher rate and additional rate taxpayers may find themselves better off.This allowance is being reduced to £2,000 from April 2018
• Investment income: from April 2016, interest is now paid gross. There is also a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Capital gains tax

• Rates: we received a welcome surprise in 2016 when the CGT rates were reduced from 18% to 10% for gains within the basic rate and from 28% to 20% for gains above the basic rate. Unfortunately, these changes do not apply to gains on residential property
• Investors relief: introduced in April 2016, this is almost an extension of Entrepreneurs’ Relief allowing individuals to pay 10% CGT on new shares in qualifying unlisted trading companies

Inheritance tax

• Residential nil rate band: Changes are being phased in from April 2017. Beneficiaries may be able to claim an extra nil rand band of £100,000 rising to £175,000 in April 2020. But as ever, the devil is in the detail. The extra nil rate band is only available if closely-related descendants inherit the home.

While there is little doubt that the main focus continues to be on tax anti-avoidance and refinement, there are a few positive changes too. And on that upbeat note, as American jurist Oliver Wendell Holmes Jnr once reportedly said: “Taxes are what we pay for civilised society.” *

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.