Top tips for trouble-free end of year tax planning

As one of the most crucial dates on the financial planning calendar approaches, at Finura our mission is to provide our clients with all the information, support and advice they need to select the correct wrappers for effective tax planning.

With a plethora of avenues to plan for and consider, we have put together this brief guide on the key areas of tax planning that should be taken into account ahead of this important deadline to ensure clients can make the most of any available allowances and new rules that may have been brought into force since the previous year end.

Individuals

Income tax

Each family member is taxed separately, including children, so it is important to ensure that everyone is making use of the relevant personal allowances. There may be an option to consider gifting of assets or for possible tax savings to be made by transferring income producing assets to a child.

Capital Gains Tax

If you are considering the disposal of chargeable assets then it is likely that you will be liable for some for level of CGT. Through a review of asset ownership between couples or by splitting disposal over two tax years you can help to reduce your liabilities. Each spouse has their own annual exemption, as do children, and if either party has experienced capital losses in a previous tax year, further tax savings could be made.

Tax Efficient Investments

Through the reinvestment of gains made on chargeable assets into SEIS shares, individuals can benefit from a 50% CGT exemption on the original disposal. It is also easy to overlook annual ISA allowances which currently stand at £20,000; the whole amount can now be allocated to cash or stock and shares. Junior ISAs are also available for minors as are cash ISAs for 16 and 17 year olds. You can open one junior cash ISA and one junior shares ISA per tax year and split the £4,260 allowance between them as you wish.

Inheritance Tax

Planning for the distribution of assets in the event of a family death can be a stressful proposition but, if dealt with early enough, can ensure that the maximum value of assets is passed onto the next generation. With careful planning, and by maximising the very generous reliefs, in some cases IHT is fully mitigated and the full value can be passed on.

Pension Contributions

With growing concerns over the government’s struggle to provide adequate levels of pensions, it is more important than ever to plan for your retirement. Again all individuals, including children, can claim tax relief on personal pension contributions annually without any reference to earnings. If you are a member of several pension schemes the rules can be complicated, so it’s wise to undertake regular reviews of your contributions so as to make best use of your available annual and lifetime allowances.

Giving to Charity

GiftAid remains a valuable tax relief for both the donor and the charity on unlimited amounts that are donated to qualifying charities. Currently charities can claim back 20% basic tax rate on any donations and 40% if the donor is a higher rate tax payer. This in turn offers an equivalent rate of tax relief to the donor on that donation.

Residential Property

With changes to main residency relief rules and other periods of non-occupation to take into consideration, property owners may need to take action to ensure maximum tax efficiency if they own more than one property, either in the UK or overseas. For example, if a property ceases to be used as a main home, only the last 18 months of ownership will continue to qualify as a period of deemed residence.

Corporate

Business Profits

The annual investment allowance offers a 100% deduction on capital expenditure so businesses would be well-advised to make full use of their annual allowances. If the allowances for a particular tax year have not been fully utilised, businesses could consider other options, such as leasing rather than buying assets outright or advancing expenditure to maximise relief. In July 2015, the U.K. government announced that the AIA would be set at a permanent level of £200,000.

Cash Extraction

Dividend payments and bonuses can benefit from tax relief through deferred payments into the next financial tax year, when circumstances may be different. Dividends can also be paid to family members paying the lowest rate of tax, offering further relief than if one individual were to receive all monetary payments themselves.

Entrepreneurs’ Relief

In certain circumstances, individuals choosing to dispose of a business, either by sale, gift or liquidation, can benefit from a reduced capital gains tax bill. Although there is a stringent criterion that must be met in order to benefit from this relief, where applicable, it can prove highly valuable.

Business Property Relief

This is one of the most valuable tax reliefs available and offers the potential to remove the full value of a business from the realms of inheritance tax, whether it is through a share in a partnership, shares owned in a qualifying company or via direct ownership of assets used to run a business, such as a sole trade.

As always, please get in touch with your adviser to discuss any ideas, plans or objectives you have over the next few months and indeed the year ahead.

Articles on this website are offered only for general informational and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

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