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A race to the finish – beating the end of tax year deadline
With personal tax returns out of the way, this is the time of year when our attention moves to those last-minute actions we can take to make the most of reliefs and allowances before the new tax year dawns. Here are a few valuable reminders…
Use your gift and investment allowances
Make use of the ISA tax free saving allowances for you and your children. Children under 18 who were not entitled to a child trust fund can save up to £4,000, providing no contributions were made to their ISA between 6 April and 1 July 2014.
ISAs for ‘grown-ups’ provide a £15,000 allowance, assuming contributions were not made between 6 April and 1 July 2014, when the allowance was lower, in cash, stocks and shares or a combination of the two. Whilst the returns on cash ISAs may not be great, making annual contributions up to the maximum allowed will, over time, build up a healthy tax-free pot.
Making gifts from capital now will save your beneficiaries paying inheritance tax (IHT) on your legacy later. You and your spouse can each make a gift of £3,000 annually, free of IHT, and can also gift any unused allowance from the previous year.
Also, if your earnings fall between £120k and £100k, you could realise a tax saving of up to 60% by making pension contributions and charitable donations under gift aid or transferring income earning assets to your spouse to bring your earnings under £100k.
Pensions deserve a special mention
Recent changes to pension rules have increased their attractiveness as a tax-free investment option. You can contribute up to £40,000 to a pension tax free each year any unused allowance from the last 3 years can also be used, which means you could contribute up to £230,000 before 6 April 2015. There are additional benefits to be gained from setting up a self-administered personal pension.
Make allowable claims by 5 April 2015
Many claim period limits are linked to the 31 January personal tax return filing date, but there are a few limits linked to the tax year end that you can still take advantage of.
For the following events that took place in the tax year 2010/11, claims should be made for
- Capital losses – which you can use to off-set gains in the 2014/15 tax year.
- Transfer of assets as a gift (either business assets on those on which IHT is chargeable) – make a holdover election
- Over-payment of tax –refunds due for the 2010/11 tax year must be claimed before the end of the tax year or they will be lost.
Assets that became of negligible value in 2012/13 should also be claimed for by 5 April.
Delay – or advance – your income
Remuneration by dividend enables business owners to defer income into the next tax year. This can both save tax and defer its payment for up to 12 months if a higher tax rate is payable. Similarly, it is possible to advance income from the following tax year into the current tax year if the business owner expects to pay tax at a higher rate in 2015/16 than in 2014/15.
Review ownership of your assets
Spouses or civil partners should aim to structure their income so that each is paying the lowest possible rate of tax. The end of the tax year is a good time to review the ownership of income generating assets to ensure you are maintaining this balance.
Take income as dividends if you are a business owner
If you are planning to take income from your business before the end of the tax year, consider taking them as dividends rather than salary to reduce your income tax. This is particularly valuable if taking it as salary would push you into a higher tax bracket.
Time disposals to make use of allowances
With the right planning in place, it is possible to use your own capital gains tax (CGT) allowance of £11,000 and those of your immediate family to maximise the benefit from the sale of an asset. This would mean a saving of £3,000 per person if paying CGT at the full 28%. Tax can also be reduced to 18% on any gain that exceeds the allowance if there is an available basic rate tax band.
You could also defer a disposal until after 5 April 2015 if you expect to have an available basic rate band in the 2015/16 tax year. This also has the advantage of deferring the payment of the tax for 12 months.
Once you’ve released your capital, you could reinvest it in assets that are 100% free of IHT after two years or in a government backed scheme, such as the Seed Enterprise Investment Scheme, [link to article in November edition] which qualifies for valuable tax reliefs.
There are so many opportunities to save tax that it might be a challenge to work out which will offer the best return for you. For advice and guidance on effective tax planning, please contact Anne-Maree Dunn.