Put in the effort now to ensure you get to keep your hard-earned cash

Put in the effort now to ensure you get to keep your hard-earned cash

The 5 April deadline for the 2012/13 tax year is fast approaching and it is worth checking you have done all you can to reduce your tax burden and keep hold of your hard earned income. Please see below our handy tips to help ensure you are in the best possible tax position.

Businesses tax planning:

• Consider accelerating capital expenditure (vans, computers, tractors etc) and other allowable expenditure, in order to benefit from tax relief earlier.
• For Capital Allowances purposes, take advantage of the temporary increase in Annual Investment Allowance to £250,000, effective from 1 January 2013.
• The qualifying threshold for low emission cars benefiting from a 100% First Year Allowance will be reduced from 110g/km to 95g/km from 6 April 2013, so it may be beneficial to buy a new car before that date.

Profit extraction:

• The dividend additional tax rate will reduce from 42.5% to 37.5% from 6 April 2013. We recommend you consider delaying dividend payments until the new tax year if your income is above £150,000.
• For income above £150,000, it may also be advantageous to delay bonuses until the new tax year to benefit from the reduction from 50% tax to 45%.
• If your income is currently below £150,000, but is expected to increase beyond this in 2013/14, consider bringing forward dividend payments to 2012/13 to utilise the 32.5% dividend rate. Or consider deferring Gift Aid payments until after 5 April to maximise tax relief, they can always be carried back to 2012/13 if there is an excess.
• Think about the level of director’s loan accounts – reducing balances before 5 April may give a lower beneficial interest charge or, alternatively, consider increasing balances instead of drawing dividends.

 

Income Tax planning:

• Consider transferring income (or income-producing assets) to your spouse to reduce your taxable income. If your spouse currently has little income, transferring could make full use of their personal allowance.
• Maximise your personal allowance (£8,105 per person or £10,500+ if aged over 65). This tapers away once your total income exceeds £100,000 and disappears altogether above an income level of £116,210, so think about making Gift Aid donations and/or personal pension contributions by 5 April to reduce your income below £100,000.
• For those with income over £150,000, consider maximising pension contributions in 2012/13 to benefit from tax relief at the 50% rate.
• Be aware there may be an opportunity to make a contribution into your pension scheme of up to £200,000 (the current year allowance of £50,000 plus the £50,000 annual allowance for each of the previous 3 years). Please note the annual pension allowance is due to reduce further down to £40,000, although this will not be applied until 6 April 2014.
• From 6 April 2013, individuals will be subject to a cap on income tax reliefs (apart from Gift Aid donations) that are currently unlimited, eg loan interest relief. The cap will be the greater of £50,000 or 25% of income (less pension contributions). Income tax relief claims should therefore be maximised in 2012/13.

Capital Gains Tax planning:

• Think about transferring shares/assets between you and your spouse pre-sale, to utilise losses and annual exemptions.
• Consider splitting assets and selling in two transactions – the first by 5 April and the second from 6 April – to make use of two CGT annual exemptions.
• Possibly delay a major sale until the new tax year to defer the CGT payment to 31 January 2015.

Allowances and Tax efficient investments:

Consider utilising the following allowances and investment routes before 5 April…

• Capital Gains Tax (CGT) exemption – £10,600.
• Inheritance Tax (IHT) exemption – £3,000 annual plus £250 gifts exemption.
• ISA limits – £11,280 (stocks and shares), £5,640 (cash).
• Seed Enterprise Investment Scheme (SEIS) – Through SEIS, you could receive income tax relief of up to 50% on investments up to £100,000. Any capital gain arising on disposal of shares held for three years is exempt. You could eliminate a CGT liability in 2012/13 by investing the gain in SEIS by 5 April.
• Enterprise Investment Scheme (EIS) – Income tax relief of up to 30% is available on EIS investments. Again, the payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS company.
• Venture Capital Trusts (VCT) – VCT investments can provide income tax relief of 30%.

Child Benefit:

• If relevant, consider arranging your affairs so that neither spouse has an income over £50,000, to avoid the high income child benefit charge.

 

Article as printed in the Retford Times 14 March 2013.

Technical content correct at time of publishing.