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Hazlewoods Agriculture team update - year end tax planning

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15 March 2013

There is still an opportunity to review matters and ensure full use is made of annual tax allowances and reliefs for the year to 5 April 2013.
 
Married couples should use both personal allowances and basic rate tax bands

For the year ended 5 April 2013, each individual has a tax free personal allowance of at least £8,105 and a 20% tax band of £34,370.

Income between £42,475 and £150,000 is charged to tax at 40%. Where an individual has taxable income over £100,000 they will lose some or all of the personal allowance giving an effective tax rate of 60% on income between £100,000 and £116,210. Income tax is charged at 50% on income exceeding £150,000.

Possible planning could include varying profit shares in a partnership or ensuring that dividends paid from a company are paid to the spouse with the lowest tax rate.
 
Child benefit
 
Child benefit will be restricted where one individual in a household has an income over £50,000.  Where possible income should be equalised between husband and wife and "partners" to ensure that the child benefit restriction is minimised.

Pension contributions should be considered particularly where tax relief at 40%, 50% or even 60%

The rules relating to tax relief on pension contributions now allow an individual to contribute up to 100% of earned income (for example salary, or partnership profit) subject to an annual limit of £50,000. However, any unused relief can be carried forward for up to three years. Therefore, pension contributions can be a useful tool in reducing the amount of income suffering higher rates of tax.

Individuals should be aware that the annual limit is due to be reduced to £40,000 from 6 April 2014.

Capital Gains Tax annual exemption

Each individual currently has an annual exemption of £10,600, which means that the first £10,600 of capital gains are tax free. Therefore spouses should consider transferring assets to each other before disposal to ensure the annual exemption is utilised, which could save tax at 28%.

It is more tax efficient to crystallise a capital loss in the year before making a capital gain, than in the same year as the gain, as a loss brought forward is only set against gains after the annual exemption is utilised.