Tax Planning Tips

Sensible tax planning is an essential tool in making the most of your finances and helping your business’s profitability.

Keeping your tax bill to a minimum is not a matter of aggressive or complex tax schemes, but rather of identifying which of the many tax reliefs and allowances specifically granted by law are available to you.

From ISAs to capital allowances, here are ten top ways of saving tax – for you, your family and your business.

Maximise personal allowances

Ensure that you are making the most of the tax-free personal allowance (PA), which for 2013/14 is £9,440 for those aged under 65, or the age-related allowances which are worth up to £10,660, maximum income £26,100. If your spouse or partner has little or no income, consider transferring income (or income-producing assets) to them to ensure that they are able to make full use of their PA.

(Care should be taken to avoid falling foul of the settlements legislation governing ‘income shifting’. Any transfer must be an outright gift with ‘no strings attached’.) Please contact us before taking action.

Pay into a pension scheme

Investing in a company or personal pension scheme will afford tax breaks on your personal pension contributions. For ‘additional rate’ taxpayers, maximising pension contributions (within limits – see below) during 2013/14 will allow you to obtain relief at the rate of 45%. Pension contributions can be made at up to 100% of relevant earnings, subject to the annual allowance of £50,000, and unused allowances may be carried forward for up to three years.

(Please note that the annual allowance will reduce from 5 April 2014 from £50,000 to £40,000.)

Use your capital gains tax (CGT) allowance

Make the most of your CGT exemption limit each year (£10,900 in 2013/14). It may be possible to transfer assets to a spouse or civil partner or hold them in joint names prior to any sale to make full use of exemptions.

Individuals with a particularly large gain may want to realise it gradually to take full advantage of more than one tax year’s allowance. (You should only consider spreading a disposal of, for example, shares if you will not be putting your gain at risk in the meantime).

Invest in an ISA

Up to £11,520 can be invested in an ISA this tax year, of which up to £5,760 can be invested in cash. Most income accrues tax-free, although the tax credit on UK dividend income cannot be recovered.

All investments held in ISAs are free of CGT. And don’t forget, the new JISA, for those aged under 18 who do not have a Child Trust Fund account, allows investment of up to £3,720 in 2013/14. 16-17 year olds can also invest up to £5,760 in an adult cash ISA, even if they already have a JISA. (Care should be taken with JISA – would you like your 16-17 year olds loose with a large sum of money!)

Review your business structure

The structure of your business can have a significant impact on your annual tax bills. While in the early years of a business it may be advisable to operate as a sole trader or partnership, as profits increase it may be more beneficial to form a limited company or put in place a hybrid structure (e.g. have a limited company as a partner). Please talk to us about the best option for your business.

Go for green transport

Switching to a ‘green’ company car with low CO2 emissions can reduce your tax liability; these vehicles are taxed at a lower percentage rate. For cars which do not produce CO2 engine emissions under any circumstances when driven (‘zero emission cars’, including those powered solely by electricity), the emissions-based percentage reduces to zero thereby reducing the car benefit charge to nil. NO P11D’s NO CLASS 1A

Review your capital expenditure

Review your capital expenditure to maximise claims for capital allowances. For a temporary two-year period from 1 January 2013, the majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first £250,000 of expenditure on most types of plant and machinery (except cars).

Also consider what capital allowances can be claimed in your building. Under “integral fixtures and fittings” we can now claim 8% capital allowances on fixtures and fittings that are fixed within the building, these can be lifts, specialist lighting, heating and other fixtures. Please talk to us about the best option for your business.

Rent out a room

Under the ‘rent a room’ scheme, income from letting furnished rooms in your main residence is exempt from tax if the gross annual rent does not exceed £4,250 (£2,125 if you share the income). If you are letting to lodgers who live as part of the family, there will be no loss of capital gains exemption. Otherwise, there may be some restriction.

A lodger can occupy a single room or an entire floor of your home. (The scheme doesn’t apply if your home is converted into separate flats that you rent out, or if you let unfurnished accommodation in your home).

Write a Will and keep it up-to-date

A well-drafted Will can ensure that the wealth you have built up during your lifetime benefits the right people on your death – and it can also be structured to save tax. However, you must review it regularly to ensure it reflects changes in family and financial circumstances as well as changes in tax law.

We can help to reduce your tax liability and secure your family’s long-term financial future, through a tax-efficient Will, we have several contacts within the Solicitors sector that we would be happy to put you in touch with.

What do you need to do next?

If you need any advice with regards to your Tax planning needs please get in touch to discuss your requirements and any concerns that you have, or contact our Tax Team on 0161 249 5040