Posted by Nick Day on 05 Mar 2015
Top Year End UK Personal Tax Planning Tips!
With the end of the 2014-15 UK tax year (5 April) looming into view and the UK Budget scheduled for 18 March, it is time to consider various year end UK personal tax planning tips that might make a difference in reducing your tax liabilities.
Our top UK tax saving tips are:
- Ensuring each spouse uses their full Personal Allowance for income tax purposes where possible. Annual income of less than currently £10,000 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.
- 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 is £40,000, so consideration should be made to utilising the full AA for 2014-15 by 5 April 2015. 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 £40,000 with a little planning.
- The pension Life Time Allowance (LTA – the total amount of UK pension savings each individual is allowed to build up in their lifetime) is currently £1.25M although there is speculation that depending on the General Election result in May 2015, this could be reduced. The new “flexible draw down” pension rules from 6 April 2015 onwards will afford individuals the opportunity to plan their affairs to manage the level of the money they take from their pension pot to both minimise annual income tax liabilities and keep within the LTA. It is possible under certain circumstances to protect your LTA by applying for “Individual Protection” by 5 April 2017 where your pension pot is worth more than £1.25M at 5 April 2014. You should seek detailed tax/financial advice if you believe you might benefit from such an application.
- 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 £15,000 per person (so up to £30,000 for a married couple) can be invested in an ISA for the 2014-15 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 £120,000 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 £120,000. 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. Entitlement to Child Benefit payments could also be protected/reinstated using year end personal tax planning.
- 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 £11,000). 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. See our page on Capital Gains Tax mitigation for more information.
- Inheritance Tax – 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 the link for more on Inheritance Tax planning.
- Expatriates – 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. See our page for more detailed information on Expatriates and Non-Doms.
In summary possible year end planning issues include:
- Reviewing the impact of the Statutory Residence Test that became effective from 6 April 2013 onwards.
- Reviewing whether “non-doms” should file on the Arising or Remittance Basis for 2014-15, and if tax resident in the UK for several years, whether the Remittance Basis Charge (of £30,000 or £50,000 for 2014-15 depending on how long you have been tax resident in the UK) 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 2015. Click the link for more detailed information on expats offshore bank accounts.
- 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 you should consider taking advance planning action.
- “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%.
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
- Non-Resident Landlords – UK Tax Update
- Non-Resident CGT – April 2019 Changes
- Tax Relief For Residential Mortgages
- Top 10 Expat Tax Tips for Individuals Moving to the UK