Personal Tax Planning – 10 pre tax year end tips

hmrc-logoChristmas may be past but another important date is fast approaching – the end of the tax year (5 April 2015).

We have noted below 10 planning tips that need action by 5 April 2015, that may help reduce your tax burden for this tax year. Please note that this is not an exhaustive or detailed list, merely a sample of matters that you should consider.

  1. Use your ISA allowance

ISA’s provide a tax free environment for your savings. The maximum investment that may be made during the 2014/2015 tax year is £15,000 per person. In addition, parents can now fund a junior ISA with up to £4,000 per child during 2014/2015. Be aware that any unused investment limit cannot be rolled forward into next year.

  1. Manage your investments

Investing in qualifying Enterprise Investment Schemes (EIS) will attract 30% income tax relief (maximum investment of £1 million). An investment in 2014/2015 could also be carried back for relief against your income for 2013/2014. Up to £100,000 can be invested into Seed Enterprise Investment Schemes (SEIS) attracting 50% income tax relief. It may be possible to carry this back for relief in 2013/2014. The tax due on capital gains realised in 2014/2015 may be deferred where the gain is reinvested into shares in a qualifying EIS or SEIS company. Whilst such investment may reduce your income tax liability, you should be aware that the value of your investment may go down as well as up and you should seek appropriate professional advice before making such an investment.

  1. Maximise your pension contributions

Contributions to your personal pension attract income tax relief. The maximum contribution that may be made for 2014/2015 without incurring an income tax charge is £40,000. You may be able to make additional contributions if you have not used your allowances for the previous three tax years Contributions must be made before 5 April 2015 if tax relief is to be claimed in 2014/2015. Your pension advisor will be able to assist you in this matter.

  1. Donate

Consider making charitable Gift Aid donations before the end of the tax year so as to be able to benefit from higher rate income tax relief for the year.

  1. Preserve your personal allowance

The standard personal allowance for 2014/2015 is £10,000. If you earn over £100,000, it will be reduced, the full allowance being lost when your income reaches £120,000. You may wish to consider deferring dividend or bonus payments after 5 April 2015 to keep income below the £100,000 limit in 2014/2015. Charitable donations or pension contributions before 5 April 2015 would also reduce your taxable income for these purposes.

  1. Maximise your basic rate bands

For those individuals whose earnings are around the tax band thresholds, some last minute planning may be tax efficient. Up until April 5th you can earn up to £41,865 without going into the 40% tax band (Personal tax free allowance of £10,000 + £31,865). Changing the timing of bonus or dividend payments to before 5th April could use up any spare basic rate capacity.

  1. Keep your child benefit

If your income (or your partner’s income) is above £50,000 HM Revenue & Customs will begin to claw back any child benefit you receive, above £60,000 all the benefit is clawed back. To prevent such a claw back, consider methods by which your taxable income for the year ending 5 April 2015 may be reduced, for example, by making a personal pension contribution. Any such action must be taken before 5th April 2015. It is individual income that is key, not family income. Therefore, if both partners can keep their income below £50,000 the child benefit will be preserved.

  1. Carry back of trading losses

Trading losses from self employment can be set against your other income in the same tax year or the previous tax year, subject to a cap which restricts certain income tax reliefs to £50,000 (or 25% of your income if higher) per year.

Losses of the first four tax years of trading can be carried back for up to three tax years but are also subject to limits on loss set-off.

  1. Capital Gains Tax

For 2014/2015, capital gains up to £11,000 per person will not give rise to a capital gains tax liability.  Make sure you use your annual capital gain tax exemption before the 5th April 2015 as any unused balance cannot be carried forward.

      10.  Inheritance Tax

If you are considering making gifts to family and friends in the near future, ensure that you have maximised your annual inheritance tax gift exemptions for this tax year. You may also utilise any unused part of the 2013/2014exemption, but this will be lost if not used by 5 April 2015.  The annual gift exemption is £3,000.

Talk to your adviser

The above is a brief overview of some of the actions that you can take to minimise your income tax liability. We recommend that professional advice is sought when considering any of the above. Our highly qualified and experienced tax team would be happy to discuss your tax affairs with you.

If you have any questions regarding your tax affairs, please do not hesitate to contact our tax team on 01491 579740.