With 5 April fast approaching here are some tax planning points that you may wish to consider. As always please get in touch if you would like to discuss these or any other planning opportunity.

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Maximise use of Personal Allowances

The Personal Allowance available for this year is £10,000 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 £120,000 – 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 2015.

Make Gift Aid donations and/or Pension Contributions before 6 April 2015.

New Individual Savings Account (NISA)

Make sure you make the most of the available ISA limits. From 1 July 2014, the overall annual subscription limit is £15,000 in any combination of cash or stocks and shares.

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

For 2014/15, income tax reliefs not otherwise capped such as Trading losses and Qualifying loan interest, are still 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 overall Financial position should this apply to you.

Couples

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.

Pensions

The annual allowance reduced to £40,000 from 6 April 2014.

Any unused annual allowances from tax year 2011/12 available to carry forward need to be used before the end of the tax year otherwise they will be lost.

The lifetime allowance also reduced to £1.25m from 6 April 2014. 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 2014/15 tax year – elect on your 2014/15 tax return.

Note – Sideways Loss relief ended 5 April 2011.
Capital Allowances

The Annual Investment Allowance increased to £500,000 from 6 April 2014. This does not however mean that all expenditure below £500,000 will automatically be entitled to 100% allowance.

Consideration should be made to maximising the use of this allowance especially in light of the proposed dramatic reduction to £25,000 on 1 January 2016.

NIC’s Employment Allowance

From 6 April 2014 eligible employers are entitled to a reduction of up to £2,000 per year in their Class 1 NIC’s. This allowance can be claimed through your own payroll software, by using HMRC’s basic PAYE tools online or by using a paper EPS.

If you run your own or a husband and wife company you may wish to look at the benefits this could give you by reconsidering the level of salary paid to yourself and your wife.

P11D Benefits in Kind – Overdrawn Loan Accounts

Thinking ahead now could avoid problems being identified during P11D completion when it is too late to rectify them. For example, where you have an overdrawn director’s loan account, reducing the balance before 5 April might give a lower beneficial interest charge if the standard averaging method of calculation is to be used.

For employee/director loans, if the loan is kept below £10,000 continuously throughout the year no interest charge will arise.
Enterprise Investment Schemes (EIS)

Income tax relief is available at up to 30% on EIS investments up to £1,000,000. Any capital gain arising on qualifying shares is exempt. In addition, it is possible to defer the payment of tax on existing capital gains.

There is a ‘carry back’ facility which allows investors to treat the full cost of the EIS shares as acquired in the previous tax year. Relief is given against that year’s tax liability.

Quick action should be taken if you wish to invest and obtain the necessary EIS3 certificate in time to use carry back for the 2013/14 tax year.

Seed Enterprise Investment Schemes (SEIS)

Income tax relief is available at up to 50% on investments up to £100,000. Any capital gain arising on eventual disposal of shares held for three years is exempt provided they have continued to qualify.

Qualifying investors may also benefit from eliminating a capital gains tax liability arising in 2014/15 or 2013/14 (by carry back) by investing in an SEIS. The relief is available on 50% of the qualifying re-invested amount subject to maximum gains of £50,000.

Quick action should be taken if you wish to invest and obtain the necessary SEIS certificate in time to use carry back for the 2013/14 tax year.

Venture Capital Trusts

Receive income tax relief at 30% on investments up to £200,000. The shares must be held for five years. No income tax is payable on dividends from the ordinary shares.

The ability to transfer the holding into a Self-Invested Personal Pension (SIPP) allows for future tax planning possibilities of generating further tax reliefs.
Capital Gains Exemption

Where possible, realise capital gains to use your annual exemption allowance of £11,000 for 2014/15 (£5,500 for most Trusts). Remember that married couples and civil partners can use two annual exemptions by transferring assets pre-sale.
Inheritance Tax

With the nil rate band having been frozen at £325,000 since 2009/10 and expected to be unchanged until at least 2017/18 it is important to review inheritance tax planning strategies where you are keen to reduce your IHT liability.

If you can afford to make gifts of capital you should seek to use your £3,000 annual exemption before the end of the tax year. Don’t forget if you didn’t use your annual exemption last year you can also use that too enabling you to make a total IHT free gift of £6,000 (or £12,000 for a couple).

There is also the small gifts exemption which is often overlooked, where an individual can give away up to £250 to as many individuals as they wish in any tax year free of IHT. However, it is not possible to use both the £3,000 annual exemption and the £250 annual exemption in respect of gifts to the same individual in the year.

Further exemptions are available also. If you are concerned about your potential Inheritance Tax position, you may wish to get further advice.
Couples

From 6 April 2015 you may be able to reduce your spouse or civil partners tax liability by a simple transfer of 1/10th of your personal allowance. If you will have annual income of less than £10,600 and your spouse or civil partner will have an annual income of between £10,601 and £42,385 and you were both born on or after 6 April 1935, you should consider taking action.

Pensions

From 6 April 2015, the Pensions landscape changes fundamentally. If you are aged 55 or over and wish to take cash from your pension, professional advice must be sought.

Employers National Insurance Contributions on Employees Aged Under 21

From 6 April 2015 employers will not be required to pay Class 1 Secondary National Insurance Contributions on earnings up to a New Upper Secondary Threshold on employees under the age of 21.

Also remember:
  • The National minimum wage increased from 1 October 2014.
  • Advisory Fuel Rates for Company Cars – LPG rate over 2000cc reduced from 1 March 2014.
  • The High Income Child Benefit charge was introduced from 7 January 2013.

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