Posted by Nick Day on 06 Mar 2014
Top 12 Year End Tax Planning Tips for 2014
With the end of the 2013-14 UK tax year (5 April) looming in to view and the UK Budget scheduled for 19 March, it is time to consider various year end planning that might make a difference in reducing your tax liabilities.
Year End Tax Planning Issues to Consider
Issues to consider include but are not limited to:Ensuring each spouse uses their full Personal Allowance for income tax purposes where possible. Annual income of less than currently £9,440 (£10,000 from 6 April 2014) is not liable to tax. Spouses/civil partners should consider the possible transfer of income producing assets to ensure that Personal Allowances are not wasted.
Employing a Spouse
If a self-employed person or family company employs a spouse to assist in the running of the business, the spouse could be remunerated fairly to utilise the tax-free Personal Allowance. It is possible to set the earnings at a level whereby no tax or National Insurance Contributions will be due but entitlement to State Retirement Pension and other benefits is protected.
Minor children are entitled to Personal Allowances. There are restrictions on the amount of income that a child can derive from a parent but gifts from other relatives can be considered. Junior Individual Savings Accounts (JISAs) can be funded by parents. Teenaged children can be employed in family businesses providing legal restrictions and national minimum wage issues are taken into account
Pension contributions of up to £3,600 gross per year can be made by individuals with no taxable income. The net contribution after tax relief contributed at source by the UK Government would be just £2,880. At the other end of the scale, the Annual Allowance (AA) for making tax-relievable pension contributions reduces to £40,000 from £50,000 on 6 April 2014, so consideration should be made to utilising the full £50,000 AA for 2013-14 by 5 April 2014. It is also possible to carry forward unused AAs from the previous three tax years, so it may be possible to receive tax relief in the current tax year on contributions well in excess of £50,000 with a little planning.
Life Time Allowance
The pension Life Time Allowance (LTA – the total amount of UK pension savings each individual is allowed to build up in their lifetime) reduces from £1.5M to £1.25M on 6 April 2014. It is possible to claim “fixed protection” of your LTA at the £1.5M level prior to 6 April 2014 but if you do this you will not be able to make further UK pension savings after 5 April 2014. In broad terms, if you do not opt for “fixed protection” by 5 April 2014 and your pension savings including investment growth go on to exceed £1.25M, then your UK pension savings will incur additional tax charges when paid out. If you have pension savings on 5 April 2014 which have a value of more than £1.25 million, you can claim “individual protection” which will allow you to protect those savings (up to a value of £1.5 million), as long as you don’t have primary protection (a claim that could have been made in previous years). Pensions are a complicated issue and you should consult you financial adviser as well as your tax adviser if these issue affect you.
The use of tax-favourable investments such as Individual Savings Accounts (ISAs), Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), and Venture Capital Trusts (VCT) should be reviewed. Up to £11,280 per person could be invested in an ISA for the 2012-13 year.
Timing of income – taxable incomes may fluctuate from year to year as a result of one-off payments or changes in circumstances. Consideration should be given to the benefits of accelerating or deferring the taxation point of investment income, employment bonuses etc., and also to the timing of the payment of dividends paid out by family owned companies. Similarly, the acceleration of expenditure on business expenses/capital assets qualifying for capital allowances could prove beneficial.
Taxable income of between £100,000 and £118,880 is effectively taxed at a rate of 60% due to the loss of the Personal Allowance, which is reduced by £1 for every £2 of income between £100,000 and £118,880 (between £100,000 and £120,000 from 6 April 2014 if no further changes to this rule are made in the Budget). Deferral of income may therefore save tax at the rate of 60% although planning might also include the use of additional pension contributions, charitable donations, etc.
Businesses should review whether a change of accounting date might prove beneficial. Early profits of a business may be taxed twice, with “overlap relief” not due to be claimed until the business ceases. If an accounting date is chosen that is later in the tax year, this can reduce the overlap period and release relief that is not otherwise index-linked. Benefits may be significant if the trend is towards a decline in profits.
Capital Gains Tax
Consideration should be given to utilising the tax-free Annual Exemption (currently £10,900). Each spouse/civil partner is entitled to the exemption each year so gifts between spouses prior to sales of assets may be tax-effective. It may be worth crystallising capital losses where gains in excess of the Annual Exemption have been made. The deferral of sales until after 5 April may see tax paid at lower rates and provide significant cash-flow benefits in terms of when tax needs to be paid. “Bed and breakfasting” to increase the base acquisition costs of shares is no longer tax-effective where shares are sold and re-purchased shortly afterwards (unless you are non-resident, when the rules do not apply), but planning with spouses/civil partners buying back the shares may still be tax-effective.
Click this link for more on Capital Gains Tax planning.
The use/carry forward of the £3,000 annual exemption should be reviewed, together with other possible exemptions such as those for small gifts of up to £250 per individual, regular gifts out of normal annual income, and tax-free gifts in consideration of marriage, which can range between £1,000 and £5,000 depending on the relationship with the person getting married.
Click this link for more on Inheritance Tax planning.
There are always as number of factors for “expats” to consider – whether this relates to non-domiciled individuals living/working in the UK or Brits leaving the UK and seeking to establish non-residence status.
You can click here for more detailed information on Expatriates but in summary possible year end planning issues include:
- Reviewing the impact of the new Statutory Residence Test that became effective from 6 April 2013 onwards.
- Reviewing whether “non-doms” should file on the Arising or Remittance Basis for 2013-14, and if tax resident in the UK for several years, whether the Remittance Basis Charge should be paid.
- For non-domiciled expats who have arrived to work in the UK and who may benefit from “Overseas Work Days Relief”, whether a fresh compliant offshore account should be opened to receive salary after 5 April 2014.
- Inheritance Tax (IHT). If you are non-domiciled and have been UK tax resident in any part of 17 out of the previous 20 UK tax years, you will become deemed-domiciled in the UK for IHT purposes, meaning that both UK and non-UK assets are liable to IHT. If you are to become deemed domiciled in the UK from 6 April 2014 you should consider taking planning action before this date.
- “Business Investment Relief” is a way for non-doms to bring funds to the UK that would otherwise be taxed on the Remittance Basis, by investing them in a qualifying UK trade (which can be their own UK trading company). The tax otherwise payable on taxable remittances would be 45%.
Contact Tax Innovations for more advice
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org.
- Property Partnership Incorporation and SDLT
- Overseas Pension Changes 6 April 2017
- Budget 2018 Summary
- Top 10 Expat Tax Tips for Individuals Moving to the UK
- Tax Relief For Residential Mortgages