Tax year end health check
Tax planning points to consider before 5 April 2015
- Your personal allowance is phased out where your income is between £100,000 and £120,000 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 (£10,000 for 2014/15), or their basic rate and higher rate tax bands (20% on income up to £31,865 and 40% on income between £31,866 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 2014/15 which is £15,000, and can be split however you chose between cash and permitted investments, such as stocks and shares. Also consider using the junior ISA limit for 2014/15 which is £4,000 for children under the age of 18.
- Consider other tax efficient investments subject to an annual maximum such as; Enterprise Investment Scheme (“EIS”), Seed Enterprise Investment Scheme (“SEIS”), Social Investment Tax Relief (“SITR”) 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 £11,000 for 2014/15 – 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 £11,000.
- 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 2015 – 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.