With the end of the tax year almost upon us, here are some tax planning tips to consider:
Income over £150,000 per annum is taxed at 45% but adding in the loss of the personal allowance can result in a top rate of tax of up to 60% for some. Individuals with income close to the thresholds could reduce their tax liabilities considerably by making gift aid payments or pension payments. Salary sacrifice can also be a useful way of keeping income below important thresholds including those for personal allowances and child benefit.
Tax Free Savings
Individual savings accounts (ISAs) provide an income tax and capital gains tax free investment. To take advantage of the limits available for 2013/14 investment must be made by 5 April 2014. The current limits are £11,520 in 2013/14. This can be made up of up to £5,760 in cash with the balance from stocks and shares.
Junior ISAs enable parents or grandparents to save up to £3,720 a year, tax-free for their children or grandchildren.
The annual contribution limit for an individual is currently £50,000 however this will drop to £40,000 from 6 April 2014. Contributions attract tax relief at your marginal rate of tax. There is an option to use unused relief from the previous three tax years.
It’s also possible to make pension contributions of up to £2,880 (effectively, £3,600 gross) each year for members of your family, even for those who do not have any earnings.
Each individual has a Capital Gains Tax allowance and in 2013-14 this is £10,900. It’s worth considering whether assets can be sold before 6 April 2014 if you haven’t used up your allowance. If you have used up your allowance, consider deferring selling assets until the new tax year or transferring them to a partner if they pay tax at a lower rate. Assets can be transferred CGT free between spouses.
Principal Private Residence Relief
From 6 April 2014, the final period exemption for private residence relief will be reduced from 36 months to 18 months. If you are in the process of selling a second home, it could be well worth doing before April if you want to take full advantage of this relief.
Business owners can take advantage of having a tax efficient mix of salary, dividends and bonuses. To achieve the maximum tax savings the timing of dividends and bonuses either side of the tax year end can be crucial..