Taxpayers should get their financial affairs in order before the start of the new tax year on 6 April.
Nimesh Shah, partner at Blick Rothenberg, said: “Opportunities to achieve tax efficiency still exist for the current tax year and need to be actioned before the start of the new tax year on 6th April 2017 to avoid missing out.”
The team at Blick Rothenberg has produced the following checklist of tax savvy moves.
- If married, consider whether a jointly owned asset could be held more effectively for income tax purposes (Form 17) – for example let property, but you need to watch Stamp Duty Land Tax (SDLT) if there are mortgages. (Susan Spash, Partner)
- Your personal allowance is phased out if your income is between £100,000 and £122,000 (2016/17) resulting in an effective rate of tax of 60%. If your income is within this range, consider making pension contributions or charitable donations to reduce the impact of losing your personal allowance. (Suzanne Briggs, Director)
- If a spouse or civil partner does not have sufficient income to utilise their personal allowance (£11,000 for 2016/17), or their basic rate and higher rate tax bands (20% on income up to £32,000 and 40% on income between £32,000 and £150,000), the higher earning spouse or civil partner may gift income producing assets to them. (Suzanne Briggs, Director)
Capital Gains Tax
- Draw from pension tax efficiently to use up elements of “bands” (Susan Spash, Partner)
- Make use of your pension annual allowance, and unused pension relief from previous years.With the pension allowance being tapered for individuals earning over £150k, the ability to save for retirement tax efficiently is becoming harder. Unused pension relief will carry forward for three years, but then drops away, so use it or lose it! The use of pension contributions is particularly beneficial where your earnings fall within one of the effective 60% tax bands, such as where your personal allowance is phased out on earnings over £100k a year. (Genevieve Moore, Partner)
- Any UK resident individual can contribute up to £2,880 (net) into a pension, irrespective of their earnings, and the pension provider is able to obtain 20% tax relief, so the policy is credited with a gross contribution of £3,600. Therefore, consider contributing to a pension for a non-working spouse/civil partner or children to benefit from £720 tax relief for each person. (Suzanne Briggs, Director)
- Particularly important for high earners is that from 2016/17, a tapered annual allowance was put in place for additional rate taxpayers so that those with income above £150,000 will have the amount they (and their employer combined) can contribute to their pension fund with relief, reduced by £1 for every £2 over the threshold. Therefore, someone with income over £210,000 will only be able to contribute a maximum of £10,000 to their pension pot (subject to unused allowances from earlier years) without incurring a charge on the excess. This will be particularly important for those whose employment earnings are close to or above the £150,000 limit and who have other income or have their employers making contributions. (Paul Haywood-Schiefer, Assistant Manager)
Property and Mortgages
- Review your portfolio and transfer assets between spouses to maximise use of the Capital Gains Tax (CGT) annual exemption / losses (Susan Spash, Partner)
- Review your portfolio and transfer assets between spouses to push anticipated dividends into the hands of the spouse with lower income (Susan Spash, Partner)
- If you have the ability and flexibility, consider realising capital gains before the end of the tax year in order to utilise your annual exempt amount. (Genevieve Moore, Partner)
- If you have sold any assets and realised a loss, make sure you claim the loss on your tax return.If you don’t claim the loss within 4 years, you can’t then claim it subsequently. Therefore, capital losses for the tax year 2012/13 not previously claimed should be claimed by 5 April 2017. (Nimesh Shah, Partner)
- The CGT annual exemption is £11,100 for 2016/17 – if you do not use the annual exemption it cannot be carried forward and is lost. Consider realising capital gains so it is fully utilised. Gift assets to your spouse or civil partner so that they are able to utilise their CGT annual exemption of £11,100. (Suzanne Briggs, Director)
- Review mortgages on let property in anticipation of the proposed reduction in tax deductibility of interest starting from 6 April 2017 – possibly seek replacement debt with better interest terms. (Susan Spash, Partner)
- For property let furnished – the wear and tear allowance was withdrawn from 6 April 2016so accurate records of any expenses incurred in replacing sofas/beds since then should be retained to claim when preparing your 2016/17 tax return. (Susan Spash, Partner)
- People with a bit more cash to splash could consider making SEIS or EIS investments (Genevieve Moore, Partner)
- Use the Inheritance Tax (IHT) annual allowances and exemptions to pass wealth down the generations. You can give away up to £3000 a year exempt from IHT, without having to survive 7 years, and if you didn’t give away any in the prior year, you can use the previous year’s £3,000 as well. (Genevieve Moore, Partner)
- Each individual can make gifts of up to £3,000 in total each year without any IHT implications. If the £3,000 exemption was unused in the previous tax year, the exemption can be carried forward so the maximum available exemption can be up to £6,000. (Suzanne Briggs, Director)
- Other exemptions from IHT for gifts are available, such as the small gifts exemption allowing gifts of up to £250 to any number of people and gifts in consideration of marriage of up to £5,000 by a parent. (Suzanne Briggs, Director)
- Make use of your ISA allowance, including junior ISAs, but make sure you weigh up the pros and cons of ISAs versus other forms of savings.With the Personal Savings Allowance, a basic rate tax payer can earn up to £1,000 in interest without having to pay tax on this income, so this may be a better choice than an ISA depending on your personal circumstances. (Genevieve Moore, Partner)
- The Personal Savings Allowance is £1,000 a year for basic rate taxpayers and £500 a year for higher rate taxpayers.There is no allowance for additional rate taxpayers. Additional rate spouse/civil partner should consider the tax cost of receiving interest in their hands. (Suzanne Briggs, Director)
- Make full use of ISA allowances – including junior ISAs. Use your annual ISA limit for 2016/17 which is £15,240, and can be split however you choose between cash and permitted investments, such as stocks and shares. Also consider using the junior ISA limit for 2016/17 which is £4,080 for children under the age of 18. (Suzanne Briggs, Director)
- Each individual has a dividend allowance of £5,000 (until April 2018 when it will reduce to £2,000). It is worth considering transferring shares to a spouse or civil partner if they have not used their own dividend allowance. (Suzanne Briggs, Director)
- If you are a shareholder and have the ability to, consider declaring a dividend from your company before the end of the tax year to utilise your dividend allowance. (Genevieve Moore, Partner)
When preparing the next self-assessment tax return, partner Nimesh Shah said:
- Include all the charitable donations you have made during the tax year to claim tax relief.Also, you can include charitable donations you have made after the end of the tax year up to filing your return and carry these back.But remember, you can’t claim for relief for these donations again next year so keep a record of what you have claimed.
- Include relief for any personal pension contributions you have made.
- If you have used your personal car for your employment and your employer has reimbursed you less than the approved mileage allowance payment (45p for the first 10,000 miles and 25p thereafter), you can claim the difference as an allowable deduction.
- If you are a member of any professional institute required for your employment, you can include the cost of the subscription as an allowable deduction.
- If you are self-employed or rent a property, make sure you claim all your expenses but remember to keep a record of all the expenses claimed.