Year End Tax Tips
With the end of the tax year fast approaching pre year end tax planning should be well under way. Of course as this is a General Election year, any planning has particular importance.
Here are our top five tips:
Top Five Tips
1. Where possible, make full use of your personal income tax allowance and basic rate band but avoid the higher rate bands. For higher earners the personal allowance is gradually withdrawn on income over £100,000, giving an effective rate of tax of 60% up to £120,000, so there is an added benefit of keeping income out of this bracket.
2. Make full use of your annual NISA (New ISA) investment allowance. The amount which can be invested is £15,000 p.a. but there is no carry forward facility. Also, children under 18 can have a Junior ISA and invest up to £4,000 p.a. Investment can be in cash and/or in stocks and shares, but any investment needs to be made by 5th April.
3. Ensure you have utilised your capital gains tax annual exemption, currently £11,000. If you have made gains in excess of this and hold an asset which has fallen in value, consider crystallising a capital loss. You need to take care, however, not to fall foul of the anti bed and breakfast rules so contact us for advice before any transaction.
4. Where possible, take advantage of the annual inheritance tax exemption of £3,000. The allowance can be carried forward for one tax year but will be lost if unused. In addition gifts which are ‘normal expenditure out of income’ can be made without limit. Such gifts must be made on a regular basis so action may be necessary before the year end to ensure a regular pattern is achieved.
5. Ensure you have maximised your pension contributions if you are a Higher (40%) or Additional (45%) rate payer. You may have heard over the weekend that both the Labour Party and the Liberal Democrats plan to reduce tax relief for high earners.
Currently, higher and additional rate payers receive 40% or 45% tax relief on their pension contributions up to a maximum of £40,000 per annum, meaning a £100 contribution only costs £60 (for higher rate payers) or £55 (for additional rate payers). This extra relief may not be available after the General Election, so consider maximising the relief while it is available. The rules around pensions are complex and subject to significant change in April however so specialist advice should be sought before finalising any contribution.
This is by no means an exhaustive list but merely some ‘quick fixes’. For a more tailored tax planning review please contact our Tax Director Jenny Marks.
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