Maximise use of Personal Allowances
The Personal Allowance available for this year is £9,440 with higher allowances available to those born before 5 April 1948.
Personal Allowances taper away once your total income exceeds £100,000 and disappear altogether above an income level of £118,880 – income falling within this band is taxed at 60%! Consideration should be made of ways to ensure your income does not fall in this bracket to effectively obtain tax relief of 60%:
- If possible, consider deferring some income until after 5 April 2014.
- Make Gift Aid donations and/or Pension Contributions before 6 April 2014.
Individual Savings Account (ISA)
Make sure you make the most of the available ISA limits. For 2013/14 this is £11,520 for a stocks and shares ISA or £5,760 for a cash ISA.
There is no tax on the interest or dividends received from an ISA and any profits are free from Capital Gains Tax.
Capped Income Tax Reliefs
From 6 April 2013 income tax reliefs not otherwise capped such as Trading losses and Qualifying loan interest, are limited to £50,000 or 25% of the taxpayer’s income (less pension contributions) if greater. (This does not apply to EIS/SEIS relief.)
Consideration may need to be given to your Financial position should this apply to you.
Couples may consider splitting their investments between them to ensure maximum use of their allowances and lower tax rates. Those who own their own business could also consider the payment (to both) of income through salary, dividend or profit share. The opportunities for the two latter routes have remained for companies and partnerships respectively following the Government’s decision not to (at least for now) introduce legislation to counter this form of income shifting. However, earlier rules on what constitutes an appropriate commercial arrangement must still be considered.
The annual allowance is reduced to £40,000 from 6 April 2014. Individuals looking to maximise pension contributions should therefore ensure that the full £50,000 annual allowance for the tax year 2013/14 has been fully utilised. Be careful to ensure that the pension’s input period ends before 6 April 2014.
Any unused annual allowances from tax year 2010/11 available to carry forward need to be used before the end of the tax year otherwise they will be lost.
The lifetime allowance reduces to £1.25m from 6 April. This change could have a significant impact on retirement planning for wealthy individuals. If this could affect you, you should seek further advice.
Furnished Holiday Lets
In order to obtain the tax breaks available for Furnished Holiday Lets the available ‘to let days’ should equal or exceed 210 days (30 weeks) and the ‘actual let’ days should equal or exceed 105 days (15 weeks).
If Furnished Holiday Let treatment is lost – then the tax breaks are lost:
- Capital allowances on furniture;
- Capital Gains Tax reliefs – Entrepreneurs Relief in particular;
- Classification as earnings for pension purposes.
If you do not qualify but you previously did then you may elect for the Furnished Holiday Let treatment to continue 2 years after failing to qualify – but you must elect!
If you do not qualify in the 2013/14 tax year – elect by 5 April 2014!
Note – Sideways Loss relief ended 5 April 2011.