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.
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