As the tax year-end draws closer, If you wish to minimise your tax liabilities in the current tax year you may wish to consider the following points before 6 April 2015.
Spouses with little or no taxable income
If you are married and your other half has an unused basic rate band or even personal allowance, it is worth considering whether income-producing assets can be transferred and subsequently owned legally by the other spouse. HMRC is relaxed about the transfer of certain assets to a spouse, such as property or quoted investments, providing they are genuinely given away, but it can be less relaxed in regards to shares in private companies.
Taxable income between £100,000 and £120,000
If your total taxable income is between £100,000 and £120,000, an effective tax saving of 60% is available if income is brought below £100,000, for example as a result of a gift aid payment or pension contribution.
CGT annual exemption and losses
Married couples each have annual CGT allowances of £11,000 for 2014/15 but they need to ‘use it or lose it’. If gains have accrued on family investments, it may be possible to use both exemptions by planning ahead. At 28%, the annual exemption is worth over £3,000 (£6,000 for couples), so it is not to be sneezed at.
A simple way to use this is to sell successful investments to crystallise the gain and then repurchase the shares in an Individual Savings Account (ISA), so that future gains will accrue tax-free.
Pension planning
The annual pension allowance is now £40,000; however any unused allowance is carried forward for three years. This does allow for some catching up, particularly as individuals approach retirement.
The lifetime limit on the pension pot an individual can accrue without incurring the lifetime allowance charge fell from £1.5m to £1.25m on 6 April 2014. Anyone with accrued pension benefits over £1.25m at 6 April 2014 can elect to retain a higher amount and should seek advice.
Even if you have no earnings, it is still possible to contribute up to £3,600 gross (£2,880 net) per year to a stakeholder pension.
Tax-efficient investments
There are a number of government-backed schemes that make investment highly tax efficient. The simplest is the ISA, but there are others, such as Venture Capital Trusts (VCT), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS), which give a variety of tax reliefs.
Gifts to charity
Couples should ensure that the higher rate taxpayer makes all charitable gifts. Gifting certain assets to charity, such as quoted shares, also provides income tax relief, while no CGT is payable on the disposal of the shares to the charity. Ideally these should be shares standing at a gain as any loss arising on such a gift would not be allowable.
Inheritance tax planning
Soaring house prices have pushed more and more people into the inheritance tax (IHT) trap, so it is not only the super-rich who are affected. Currently, IHT is charged at 40% on assets over the nil-rate band threshold (£325,000 at present) on death. However, for married couples, any proportion of the nil-rate band left over on the first death can be added to the nil-rate band on the second death.
A special tax rate of 36% applies if an individual leaves 10% of their net estate to charity. This may require some careful redrafting of their will, so it is useful to take the opportunity to review the amount a client leaves and to whom.
The easiest way to reduce the impact of IHT is to make gifts to others while you are alive. An individual can give £3,000 a year to other individuals (such as their children) and if they have not already done so, use the previous year’s as well as the current year’s allowance. A one-off gift of £5,000 can also be made to children and £2,500 to grandchildren as wedding gifts. These gifts are completely free of inheritance tax.
Most lifetime gifts are exempt provided the donor survives seven years from the date of the gift.
In Business – year end coming up?
Thinking of buying new business vans or equipment – then take advantage of HMRC Annual Investment Allowances – see https://www.gov.uk/capital-
To maximise your tax efficiency and discuss your tax planning strategy for 05/04/15 please Contact Us and we’ll be happy to assist.