YEAR END TAX PLANNING
Although there continues to be publicity about tax avoidance it is still possible to implement good tax planning and as the tax year end approaches it is worth considering whether there is any tax efficient planning to undertake before 5 April 2017. Ensuring you utilise any relevant exemptions or limits that may be available is important as many of these cannot be claimed retrospectively. Some basic tax planning points are noted below but this is no substitute for discussing this direct with a partner at Wrigley Partington.
Points to note:
- if possible you should ensure you utilise your annual tax free personal allowance of £11,000 - transferring income bearing assets between spouses or civil partners may result in income either being covered by unused allowances or being taxed at a lower rate
- income in excess of £150,000 gross is liable to income tax at 38.1%/45% it will be worth deferring if the income level is likely to be less than £150,000 after 5 April 2017
- the loss of the personal allowance when your gross income exceeds £100,000 is effectively at a rate of over 60%. Use of pensions and other reliefs may help to mitigate this tax
- if you or your partner receive child benefit and your income exceeds £50,000 there may be a claw back of the benefit. Use of pensions and other relief can reduce this exposure
From 6 April 2016 there is a new regime for taxing dividends and you should seek advice if you receive dividends in excess of £5,000 net each year. Good tax planning such as timing of bonuses and dividends can provide significant tax savings and prevent unnecessary excessive tax bills!
Up to £3,600 gross can be invested by anyone. Tax relief is generally only available up to £40,000 for the year but is linked to earnings. More can be claimed in specific circumstances with the possibility of carry forward of unused relief. From 6 April 2015 there have been significant changes to the pension rules and independent financial advice should be sought if you are unsure how these changes may affect you.
The limits for individual ISA investments for 2016/17 are £15,240 in total (with up to £5,940 in a cash ISA). There are now Junior ISAs available and you can use these for children or grandchildren. Help to Buy ISA's have been available since 1 December 2015 so if you are likely to be a first time buyer these are worth investigating as the government will add a bonus where certain conditions have been met.
Tax Efficient Investments
Enterprise Investment Schemes (EIS), Seed EIS and Venture Capital Trusts (VCT) offer income tax relief incentives of up to 50% plus favorable capital gains tax treatment and inheritance tax reliefs which can be beneficial to mitigate current year tax liabilities. However these are high risk investments and suitable professional advice must be sought before proceeding.
Capital Gains Tax – Annual Exemption
Ensure where possible you have utilised the individual annual exempt amount of £11,100. Crystallising losses where there are potential gains over this limit must be done before 5 April 2016 but do not waste the annual exempt amount. Capital losses cannot be carried back.
Every individual has an annual exemption for inheritance tax purposes of £3000 plus the previous year if not utilised. You should review your inheritance tax position regularly and determine whether there are gifts that can be made to minimise the tax.
You might also be able to help your family out with ‘normal expenditure out of income' and the sooner you start the stronger the argument for exempting these payments from a future tax liability.
Capital allowances for business
From 1 January 2016 the Annual Investment Allowance is £200,000. The timing for asset purchase will affect the allowable tax relief. Whether to purchase an asset prior or after your year end (whether tied into the tax year or not) should always be a consideration and Wrigley Partington can advise you accordingly.
Good personal tax planning can provide significant savings – don’t wait until the new tax year – contact us now.
Wrigley Partington Chartered Accountants
Sterling House, 501 Middleton Road
Chadderton, Oldham OL9 9LY
0161 622 0222
Disclaimer: We have taken every precaution in making sure that the information contained in these documents is accurate. The nature of the information provided is for your general information only. The content does not constitute legal or other professional advice.