Tax year end health check
Tax planning points to consider before 5 April 2014
- Your personal allowance is phased out where your income is between £100,000 and £118,800 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.
- If a spouse or civil partner does not have sufficient income to utilise their personal allowance (£9,440 for 2013/14), or their basic rate and higher rate tax bands (20% on income up to £32,010 and 40% on income between £32,011 to £150,000), the higher earning spouse or civil partner may gift income producing assets to them.
- 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.
- Use your annual ISA limit for 2013/14 which is £11,520, and can be split between cash (up to £5,760) and permitted investments, such as stocks and shares. Also consider using the junior ISA limit for 2013/14 which is £3,720 for children under the age of 18.
- Planning for the pension contributions changes, see page 2.
- Other tax efficient investments subject to an annual maximum such as Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCT). These complex investments are potentially suitable for a sophisticated investor and bespoke advice should be taken.
Capital Gains Tax (CGT)
- The CGT annual exemption is £10,900 for 2013/14 – 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 so that they are able to utilise their CGT annual exemption of £10,900.
- If you have assets that have fallen in value or have become worthless, you may be able to claim a capital loss and offset this against capital gains, saving tax up to 28%. Where the capital losses relate to shares in unquoted trading companies, it can be possible to offset the loss against income, providing tax relief of up to 45%.
- Where you expect to realise a significant capital gain, consider delaying the disposal until after 5 April 2014 – this will defer the date by which the tax is due by 12 months.
Inheritance Tax (IHT)
- 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.
- 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.
- A potentially valuable exemption from IHT is available for gifts out of surplus income that are both regular and do not affect your standard of living.