Last Minute Year End Tax Planning Tips!

With the end of the 2014-15 UK tax year (5 April) looming in to view and the UK Budget having just happened last week, it is time to consider various year end UK personal tax planning tips that might make a difference in reducing your tax liabilities.

My top UK tax saving tips are:

Ensure that each spouse (or civil partner) uses their full Personal Allowance (PA) for income tax purposes where possible. Currently this stands at £10,000 for 201/15 and is not liable to tax. Spouses/civil partners should also consider transferring income producing assets to each other in order ensure that PAs are not wasted. If as a self-employed person or though a family company you employ a spouse to assist in the running of the business, the spouse could be remunerated fairly to utilise their tax-free PA.

Minor children are also entitled to Personal Allowances. However, bear in mind that the amount of income a child can derive from a parent is limited to £100 each year. However, Child Trust Funds and Junior Individual Savings Accounts (JISAs) can be funded by parents.

Pension contributions of up to £3,600 gross per year can be made by individuals with no taxable income. The net contribution after tax relief contributed at source by the UK Government would be just £2,880. At the other end of the scale, the Annual Allowance (AA) for making tax-relievable pension contributions is £40,000, so consideration should be made to utilising the full AA for 2014-15 by 5 April 2015. It is also possible to carry forward unused AAs from the previous three tax years, so it may be possible to receive tax relief in the current tax year on contributions well in excess of £40,000 with a little planning.

The pension Life Time Allowance (LTA – the total amount of UK pension savings each individual is allowed to build up in their lifetime) is currently £1.25M although the Budget reduces this to £1m next year. The new “flexible draw down” pension rules from 6 April 2015 onwards will allow individuals the opportunity to plan their affairs to manage the level of the money they take from their pension pot to both minimise annual income tax liabilities and keep within the LTA.

Use of tax-favoured investments such as ISAs, Enterprise Investment Schemes, Seed Enterprise Investment Schemes, and Venture Capital Trusts should also be reviewed. Up to £15,000 per person (so up to £30,000 for a married couple) can be invested in an ISA for the 2014-15 year.

Incomes can fluctuate from year to year as a result of one-off payments or changes in circumstances. Consideration should therefore be given to the benefits of accelerating or deferring the taxation point of investment income, employment bonuses etc., and also to the timing of the payment of dividends paid out by family owned companies. Similarly, the acceleration of expenditure on business expenses/capital assets qualifying for capital allowances could prove beneficial.

Taxable income of between £100,000 and £120,000 is effectively taxed at a rate of 60% due to the loss of the Personal Allowance, which is reduced by £1 for every £2 of income between £100,000 and £120,000. Deferral of income may therefore save tax at the rate of 60% although planning might also include the use of additional pension contributions, charitable donations, etc.

Entitlement to Child Benefit payments could also be protected/reinstated using year end personal tax planning.

Consideration should be given to utilising the tax-free Annual Exemption (currently £11,000) on capital gains. Each spouse/civil partner is entitled to the exemption each year so gifts between spouses prior to sales of assets can be tax-effective. It may be worth crystallising capital losses where gains in excess of the Annual Exemption have been made. The deferral of sales until after 5 April may see tax paid at lower rates and provide significant cash-flow benefits in terms of when tax needs to be paid.

The use/carry forward of the £3,000 Inheritance Tax annual exemption should be reviewed, together with other possible exemptions such as those for small gifts of up to £250 per individual, regular gifts out of normal annual income, and tax-free gifts in consideration of marriage, which can range between £1,000 and £5,000 depending on the relationship with the person getting married.

Disclaimer - The above blog does not constitute advice and not should be taken as such. The author accepts no responsibility for losses arising from taking action based on the contents of this blog alone. I also  recommend that you should seek detailed financial advice from an appropriately qualified advisor if you believe you might benefit from any year end planning that involves investments and/or pensions.

All change for Steven Holden Tax...

At the beginning of this month I joined the team at Haines Watts, working out of their Tamworth office in Staffordshire. I'm almost two weeks in now and having a great time working with a brilliant bunch of like-minded people, and clients who have some very interesting tax issues. Life here is good...

Haines Watts are a Top 15 firm of chartered accountants who specialise in advising and supporting business owners. With more than 60 offices they work with over 35,000 companies and business owners nationwide, giving their clients access to a huge amount of business expertise and knowledge both on a local and national level.

Where the team at Haines Watts and I have found a particular synergy is the approach we take towards dealing with our clients, viewing it as our responsibility (and a matter of best practice) to take a holistic view beyond that of just the numbers. The firm's ethos is to stand beside their clients as partners, helping them manage their businesses and family wealth to ensure they achieve their objectives through good advice. In short, Haines Watts are more than just accountants…

Right, so trusts are dead then?

No, they're not, trusts are very much alive and kicking. The concept and use of trusts in the UK has been around since the times of the crusades, undoubtedly they are one of English law’s most wonderful innovations. However, in recent times we have seen both HMRC and the English family law courts have somewhat crucified them.

As some of you may be aware the Finance Act 2006 made wholesale changes to the wealth planning landscape by introducing the 10 year charge or 6% and exit charges to pretty much all lifetime trusts. Add to this the immediate 20% inheritance tax charge to assets added into trust above the nil rate threshold and you can begin to understand why many think the use of trusts has had its day.

However, nothing could be further from the truth, both for business owners and people holding significant private wealth. Various entities have been put forward as the alternative: family limited partnerships (FLPs), family general partnerships and FICs. There are, however, regulatory downsides to using partnerships and, until recently, there were taxation downsides to using FICs (see my earlier blog on these). However, none of these have fully replicated the usefulness of trusts.

The biggest advantage of a trust over all of its would-be successors is that it allows the donor to retain full control over the assets being gifted, be that shares in the family business as we have discussed here before, or holding a property for another persons benefit. What a trust does is divide the legal and beneficial ownership. Now, whilst the English family law courts have driven a truck through the concept of equity and trusts in recent years, they are still terribly useful in helping to manage a family's finances and exposure to inheritance tax. They are however now only part of the solution, not all of it.

If you'd like to discuss the use of trusts are part of your overall tax and wealth planning please get in touch with us for a free, no obligation consultation.

Disclaimer - The above blog does not constitute advice and not should be taken as such. The author accepts no responsibility for losses arising from taking action based on the contents of this blog alone.