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Tax year end planning – our top 10 tips

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4 February 2016

Having just recovered from the January tax return filings, thoughts turn to the end of the next tax year!  We have highlighted below our top 10 tax planning tips to consider pre April 2016.

1. With the changes to the taxation of dividends from April 2016, consideration should be given to accelerating dividend payments into the current period to take advantage of lower rates (providing there are sufficient distributable reserves).  It should be borne in mind, however, that this will also accelerate the tax payment date by 12 months.  Care should also be taken to check that this action does not put you in the position explained in tips 6 and 7 below.

2. For owner managed businesses, the new Personal Savings Allowance could present an opportunity for extracting money from the business tax free. From April 2016, the first £1,000 of interest income will be exempt from tax for basic rate taxpayers and £500 for higher rate taxpayers.  Those paying tax at the additional rate will not receive an allowance.  Directors may want to look at charging interest on their loans where they haven’t historically done so, or check that the interest rate is set an appropriate level if they do receive to ensure they are maximising this allowance.

3. Pensions planning should also be considered, particularly for those earning over £150,000 as the annual allowance is set to reduce from April 2016.  Currently set at £40,000, the annual allowance will gradually reduce for additional rate taxpayers down to a minimum of £10,000 for those earning over £210,000.

4. If possible you should make full use of your ISA allowance, which is £15,240 for the 2015/16 tax year.  Although the investment itself doesn’t attract any tax relief, any income generated from it will be tax free.

5. If you have any surplus cash, you could look to invest in an Enterprise Investment Scheme (EIS), which would attract 30% income tax relief on a maximum annual investment of up to £1million. An investment in 2015/16 could also be carried back to 2014/15 which would reduce tax liabilities in that period and accelerate tax relief.

6. As the personal allowance is reduced by £1 for every £2 of net income over £100,000, those with income of between £100,000 and £150,000 could end up paying tax at an effective rate of 60%. If your income is close to the threshold it may be worth considering ways to reduce your taxable income. This could be achieved by making pension contributions, charitable donations, deferring income into 2016/17 or transferring income producing assets to your spouse.

7. Taxable income exceeding £50,000 for the year could lead to a claw back of child benefit.  Once taxable income reaches £60,000 the benefit will be lost in full. Reducing, deferring or transferring taxable income as described under ‘6’ above could help to preserve this benefit.

8. For those who own furnished properties, 2015-16 will be the last year that the wear and tear allowance can be claimed.  This allowable deduction from rental profits was calculated as 10% of net rents. However, from April 2016 deductions will only be available for actual costs of replacement furnishings.  Therefore, where possible expenditure on replacement furniture should be delayed until after 5 April 2016.

9. If you are looking to purchase a buy-to-let property or holiday home, completion pre 1 April 2016 will help to avoid higher rates of Stamp Duty Land Tax (SDLT).  After this date, an additional 3% SDLT will be added to your bill for purchases of second homes.

10. The Capital Gains Tax annual exemption for all individuals for 2015/16 is £11,100, which you should try and use, if possible. Consideration should be given to the transfer of assets between spouses such that both benefit from the £11,100 annual exemption.

There are a number of other pre 6 April 2016 planning opportunities.  If you would like to find out more please get in touch with your usual tax contact.