Ruth Dooley, tax partner at Hazlewoods LLP, looks at tax mitigation ideas
For many people this time of year is when they want to forget all about tax, other than maybe promising themselves that they will submit their tax return earlier next year!
But this is exactly the time of year when you should be taking a step back and thinking about your tax position. Action taken now can mean future tax payments could be significantly smaller than would otherwise be the case.
Tax planning before the tax year ends on 5 April 2012 applies equally to individuals looking at their personal finances as well as to business owners. Good planning includes making sure you take full advantage of the available allowances and exemptions.
Although many planning ideas are simple, others are more complex and require time and consideration before implementation. It is never too early to start thinking about ideas such as those set out below.
This year’s ‘super seven’
- Married couples and civil partners
Both should try to make full use of their personal allowances and their basic rate bands. The tax free personal allowance is currently £7,475 and the basic rate band is £35,000. If one partner has not used their allowance but the other has, the couple should consider transferring income-earning assets to optimise the position.
- Taxable income over £100,000
Personal allowances are lost and tax rates increase to up to 60% once taxable income exceeds £100,000. Planning could include:
- Reducing income by making pension contributions or gift aid payments to charity.
- When looking at investments, thinking about maximising capital growth which will usually be taxed at 28%.
- Annual investment allowance of £100,000
These capital allowances are available at 100% on the first £100,000 of expenditure on plant and machinery (excluding cars) until 5 April 2012 (31 March 2012 for companies). After that only the first £25,000 each year qualifies for the relief.
- Use your CGT annual allowance
For the year ending on 6 April 2012 all individuals have a CGT annual exemption of £10,600 so you should try and use it, if possible.
- Consider Entrepreneurs’ Relief
If you are likely to sell a business interest or business asset in the next 12 – 24 months you should speak to your tax adviser to ensure that you qualify for Entrepreneurs’ Relief. This relief can save you up to £1.8 million of tax but the rules are stringent so they must be considered well in advance of a sale
- Make use of your Inheritance Tax exemptions
Take advantage of the annual gift exemption of £3,000 where possible. If you have not made use of the exemption in one year, it can be carried forward and used the next year. Certain other small gifts, some gifts on the occasion of marriage and gifts to charitable and political organisations are also exempt.
- Make investments and plan for your retirement
In the last few years there have been many changes made to pension tax relief and more changes will apply from 6 April 2012. There is also the opportunity to invest in ISAs, Junior ISAs and child trust funds. You should speak to your financial adviser to ensure you maximise your benefits.