Tax planning between now and 5 April 2017
Before the end of each tax year it is a good idea to take a step back and review what can be done to ensure that you are benefiting from all of the reliefs and exemptions available to you and to prepare yourself for any changes in legislation that may be relevant to you.
Here are some of the key aspects to consider between now and 5 April 2017.
1. Use allowances and thresholds of the family
The personal allowance, dividend allowance, savings allowance and 0% starting rate for savings income can mean that the first £22,000 of your income is completely free from tax. Spreading income between family members should also be considered to utilise multiple allowances and basic rate bands.
2. Pension contributions
Personal pension contributions achieve 20% tax relief at source and extend your basic and higher rate thresholds meaning that more of your income is taxed at the lower rates. They can also serve to claw back personal allowances and help to avoid repayment of child benefit. An annual allowance of £40,000 is available to most individuals with income less than £150,000, which can be carried forward three tax years if left unused.
3. Tax efficient investments
EIS, SEIS and VCT investments offer quite significant income tax reliefs upon initial investment (30%/50%/30% respectively to be precise) which can be used to offset tax payable in the current and previous tax years. The relief does not, however, provide for a refund to be created in excess of your tax liability and so making sure that you have paid enough tax to take advantage of the full relief is essential.
4. Overlap relief
Most unincorporated businesses that have an accounting period which does not end on either 31 March or 5 April will have had some of their profits taxed twice in the opening years, creating “overlap relief”. If the circumstances are right, it might be appropriate for you to bring forward your accounting reference date or even incorporate your business to access this overlap relief and reduce your tax for the year.
5. CGT allowances
All individuals are entitled to a £11,100 annual exemption from capital gains tax each year which, if left unused, cannot be carried forward or backward into other tax years. There are various ways to ensure that your allowance is not wasted which can save CGT in present and future years. Using your spouse’s annual exemption is also a useful method in mitigating capital gains tax as two exemptions are effectively available.
6. ISAs and Junior ISAs
It is easy to forget that certain ISAs can offer attractive returns on investment and that any income generated within the ISA is free from tax. Up to £15,240 can be invested into an ISA each year (£4,080 for Junior ISAs) which is set to rise to £20,000 from April 2017. The new Lifetime ISA (LISA) will be available from 6 April 2017 to any UK resident aged between 18 and 39. The Government will add a 25% bonus to any contributions made up to the maximum amount of £4,000 per tax year.
7. Inheritance Tax
An annual exemption of £3,000 is available to use against any gifts made. It is possible to carry forward any unused annual exemption from the previous year meaning that up to £6,000 can be passed down to family members before 6 April whilst still preserving your 2017/18 exemption.
8. Residential landlords
The restriction on mortgage interest available to offset against rental income is to be phased in from April 2017 as a 75% deduction, before it is fully phased in and restricted to the basic rate of tax in April 2020. It may be worth taking the time to consider whether incorporation may be a more beneficial way to structure your business in preparation for these changes.
9. Salary sacrifice
Employee’s and employer’s currently have a choice in the way that benefits are structured (e.g. salary sacrifice or P11d benefits) and can opt for the arrangement which results in the lower charge to tax. The rules for how the tax and NI is calculated for some benefits under salary sacrifice, however, is changing from 6 April 2017 so that the higher value must be used.
10. Changes for non-domiciles
From 6 April 2017 non-domiciles who are ‘long-term’ residents, meaning resident in the UK for 15 out of the last 20 years, will be deemed to be UK domiciled. This means that the option to claim the remittance basis will no longer be available and worldwide income which could have previously been left unremitted and not taxable in the UK will now become subject to UK tax.
To ensure your tax planning is carried out efficiently and effectively please contact us and we will ensure that you maximise all of the benefits and reliefs to which you are entitled.
Steve Crompton - Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
Chris Barrington - Tax Partner
direct dial: 01942 292505
mobile: 07730 436070