Time to think about year end tax planning?

As the end of the tax year approaches on Saturday 5 April 2014, now is the time to give some thought to year-end tax planning opportunities.

Income tax and personal allowances The Chancellor confirmed that in 2014/15 the personal allowance would rise by £560 to £10,000. At the same time, the basic rate band 

will shrink by £145 to £31,865, leaving the higher rate threshold just 1% higher next tax year, at £41,865. There is no change to the £150,000 starting point for 45% tax, nor the £100,000 threshold at which the personal allowance starts to be phased out.

The basic personal allowance for 2013/14 is £9,440. If it is not used before the end of the tax year it will be lost. The personal allowance is reduced by £1 for every £2 by which income exceeds £100,000. It may be possible to avoid losing the personal allowance by reducing income below £100,000. This could be achieved by making pension contributions, deferring some income until after 5 April 2014, making charitable donations or transferring income-producing assets to a spouse or civil partner. This strategy will save tax at an effective marginal rate of 60% for income between £100,000 and £118,880. 

The best way to pick up and use any unused personal allowance is for the company to pay interest on any current account balance held by the shareholder or director. Although this would require the company to deduct tax and complete form CT61 to report the interest paid and pay over the tax deducted to HMRC, the individual will be able to recover the tax deducted later. Of course, this is only possible if the individual has a positive balance on their account with the company.

Pension contributions It is possible to benefit from full tax relief on contributions to registered pension schemes, and this can help to make them very tax-efficient investments. The tax relief is capped at the higher of £3,600 and 100% of earnings, although this is restricted to the annual allowance, which is set at £50,000 

for 2013/14 but will reduce to £40,000 from 2014/15. The annual allowance can be carried forward for three years, after which time it is lost. 

Tax-efficient savings It could be wise to invest in an individual savings account (ISA) by 5 April 2014. The ISA allowance for 2013/14 is £11,520, of which £5,760 can be in cash.

Capital gains planning Each individual can realise capital gains of up to £10,900 in the current tax year free of capital gains tax. Married couples and civil partners can therefore realise gains of up to £21,800 tax-free in 2013/14.