*Featured In The EDP Norfolk Magazine*
April 5th signals the tax year end, so here a few tips to put into practice before then to help keep the tax man at bay.
Review income levels of you and your family to see if there is any margin for ‘switching’ income from you to your spouse, though this does depend on the nature of the income producing asset. Current income tax rates are at 45% on income over £145,000, and personal allowances are lost as income exceeds £100,000. In some circumstances, it is possible to move income from one spouse to another, allowing your total household income to be more tax efficient.
Capital Gains Tax
Capital Gains Tax exemption of £11,100 is available to every taxpayer in 2015/2016. Tax thereafter will be assessed at either 18% or 28%, subject to the level of your assessable income, assuming the asset sold does not qualify for Entrepreneurs relief (10% tax). There is scope to make full use of both partners annual exemptions.
If you contribute up to £40,000 per annum into a pension scheme, you are eligible for tax relief. You may also bring forward unused relief for up to 3 years and effectively use this too. For those who are already in flexible draw-down, the annual allowance is £10,000.
The whole of your earnings can be paid into a pension scheme, but relief is capped at the annual allowance and any relief brought forward. Contributions of £3,600 can be paid into a pension scheme for your partner – or any other person for that matter – regardless of earnings, and relief is still obtained at 20%.
Depending on your income, tax reliefs apply to contributions at either 20%, 40% and 45%. For those with an income of £100,000 and above, some of the relief will effectively be as high as 60%!
ISA limits for 2016 and 2017 remain at £15,420. This limit can be split between a cash or investment ISA – income and gains are tax free.
Income tax relief is available under the Enterprise Investment Scheme. Relief is available for investments into smaller, unlisted qualifying trading companies at 30% on investments up to £1million. Capital gains are tax free on shares held for three years.
Investors who are willing to put their money into very small start-up companies, there is the Seed Enterprise Investment Scheme offering a relief of 50% on the cost of investments up to £100,000. Capital Gains tax relief may also be obtained.
Consider your IHT annual exemption for gifts with a value of £3,000. This can be used in conjunction with the previous years exemption if last years was unused. You can make any number of small gifts (£250) provided it’s not to the same person, in the same year. Exemption for gifts demonstrably out of excess income might be available.
Written by Tax Consultant, Philip Hunt.