End of tax year fast approaching!

The tax year end of 5 April is fast approaching which means that it is time to think about maximising your tax position. There are a number of possible tax planning issues that you might wish to consider and we have included a few of the more popular ones below:

YEAR END PENSION PLANNING

Take advantage of the pension carry forward rules in order to benefit from any unused relief. The maximum amount that can be contributed to your pension is currently £40,000 per annum (£50,000 per annum up until 5 April 2014) but it is possible to use the previous 3 year’s relief if not already used. If you have not used previous years’ pension relief then it may be worth paying a large pension contribution before 5 April 2015 in order to make use of the pension relief available.

GET READY FOR THE NEW FLEXIBLE PENSION RULES

For those aged 55 and over and with a SIPP or other money purchase scheme, the new flexible pension rules commence on 6 April 2015. The new rules allow you to withdraw as much or as little income as you like from your fund but the income drawn will be taxed at your marginal tax rate.

AVOID LOSING YOUR PERSONAL TAX ALLOWANCE

For every £2 that your adjusted net income exceeds £100,000, the £10,000 personal tax free allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

MAKE CHARITABLE PAYMENTS UNDER GIFT AID TO SAVE MORE TAX

Higher rate taxpayers can make charitable payments under Gift Aid to obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC.

YEAR END CAPITAL GAINS TAX PLANNING

Have you used your 2014/15 annual exemption of £11,000? Consider selling shares where the gain is less than £11,000 before 6 April 2015. Also, if you have any worthless shares consider a negligible value claim to establish a capital loss. You may even be able to set off the capital loss against your income under certain circumstances.

TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES

Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.

INHERITANCE TAX PLANNING BEFORE 6 APRIL 2015

Have you made use of your annual inheritance tax exemptions? The general annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT.

OTHER TAX EFFICIENT INVESTMENTS

If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS), which offers income tax relief of 30 per cent as well as

capital gains tax relief when you buy shares in certain qualifying companies? An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available. It is possible to shelter 50% of your capital gains in 2014/15 and there is a capital gains tax exemption when the shares are sold. Note however that qualifying Seed EIS companies tend to be risky investments so professional advice should be taken. A 30% income tax break is also available by investing in a Venture Capital Trust.

THE £2,000 NATIONAL INSURANCE EMPLOYMENT ALLOWANCE CONTINUES FOR 2015/16

The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week).

AND NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015

A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.

The notes above only provide an outline of the possible tax planning ideas, if you require further details or advice then please do not hesitate to contact us.

This blog was complied by Ashley Barrowclough.

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