As we approach a new tax year, don't forget...
The following tips to improve your tax situation
Hopefully we have all remembered to use our ISA limit for the current tax year. This tax year you can place up to £15,240 in a cash or stocks and shares ISA or in a combination of these two types of ISA. Other planning you can consider include:
- Consider making dividend payments before the dividend tax rates go up on 5 April 2016.
- Give funds to spouse to maximise the amount of income which is taxed at the income tax basic rate band. It may be sensible to consider a joint property election to put rental income into the hands of a basic rate tax payer.
- Consider swapping salary for benefits. Although most benefits are taxable there are still some benefits which are non taxable.
- Use pension contributions to reduce client salary to £50,000 to avoid the child benefits charge or below £100,000 to preserve income tax personal allowances.
- Consider the timing of interest payments – do they need to be deferred to another tax year or will it be more beneficial to have the deduction this tax year?
- Ensure borrowings attract tax relief, if it is available.
- Review directors’ loan accounts, to minimise tax charges.
Much was made ahead of the Budget that pension relief may be restricted. Though the Chancellor has put this on hold for the moment, there are planning steps you should consider before the tax year end such as:
- Maximise your £40,000 annual allowance.
- Make sure you fully use carry forward reliefs and that higher rate and additional rate tax payers get tax relief on their pension contributions at the highest rate.
- Maximise contributions before the introduction of the Tapered Annual Allowance and Reduced Lifetime Allowance.
Although inheritance tax is not completely driven by the tax year end, it is worth checking to see that you have done the following:
- Have you used your £3,000 annual exemption and last year’s annual exemption (if it was unused last year)?
- Consider normal expenditure out of income and document any such payments carefully.
- Consider lifetime gifts to get your 7 year clock running.
- Make sure insurance policies are written in trust to take them out of your estate.
- If you have private company shares that you are likely to sell can you maximise their Business Property Relief status to make lifetime gifts, prior to sale.
- Review your estate plan and Will – a tax efficient Will is important.
- Since April 2014 there has been a restriction on liabilities on estates, therefore you should review liabilities to check that they will all be tax deductible.
Every tax year end it is wise to check that you have used your annual exemption which is £11,100 this tax year for individuals and that you use Bed and Spouse or Bed and ISA planning to remove gains from your portfolio. Other planning to be considered includes:
- Do you wish to make investments in EIS Venture Capital Trusts or Seed EIS?
- Use losses from previous years to shelter current year gains.
- Review qualifications for Entrepreneurs’ Relief.
- Claim CGT losses for assets which have become of negligible value.
- Make your main residence if you have acquired a second home. There are tight time limits for this election but before you make it you need to take advice.
- Consider renting your home if it is no longer required as your main residence.
- There have been recent tax charges on residential property held by companies - consider moving investments into commercial properties to counter these changes.
These suggestions should ensure that you go into the new tax year in good financial shape. If you think any of the above points are applicable to you and want more information do not hesitate to contact a member of the private client team.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.