For those of you in self-assessment, you know the drill by now…the annual cycle will be all too familiar. Your accountants will soon be issuing reminders through all available channels of communication, hot on the heels of HMRC and their teal green reminders. But before we hit the 6 April and commence on our self-assessment journey, there is still time to consider tax savings that can be implemented prior to the tax year-end:
- Maximising your personal allowance and basic rate band – In 2014-15 the personal allowance is £10,000 and the basic rate band is £31,865, so for many taxpayers higher rate tax will become due when total taxable income exceeds £41,865. For married couples, maximising the personal allowance and basic rate band is a key planning point. For example, consider how your investment portfolios are shared or a beneficial ownership on shared rental properties to apportion rents in the most tax efficient way. Paying a salary to spouses who work in the family business could also be an option.
- Retaining personal allowance – Individuals with taxable income of £100,000 will have their tax-free personal allowance clawed back at a rate of £1 for every £2 that the adjusted net income goes above £100,000. This means you will not be entitled to any personal allowance if your income is £120,000 or above and will result in an effective tax rate of 60% on a proportion of your income. Tax planning should be considered where claw backs are avoidable.
- Keep your child benefit – There will be a claw back of child benefit where one individual in a household has income higher than £50,000. If both partners have income below £50,000 however, the claw back will be avoided and you will not have to pay back any child benefit received. Tax planning should be considered where claw backs are avoidable.
- Pension contributions and charitable donations – Pension contributions must be made before 5 April 2015 to be applied to 2014/15 income. For every £1 contributed to a pension scheme HMRC will contribute 20p. You will also receive a further 20p or 25p reduction in any higher or upper rate tax paid. Charitable donations made under gift aid will also reduce your higher rate liability, so now’s the time to give if you’re feeling generous.
- Tax efficient investments schemes – Higher rate taxpayers may also consider tax efficient investment schemes which mitigate higher rate tax, such as venture capital trusts and enterprise investment schemes.
Finally, don’t forget your annual new ISA allowance and capital gains tax annual exemption!
This list is by no means exhaustive and each individual’s personal circumstances should be considered before implementing any of the above. Please contact Green & Co for further information.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.