Are you one of the new 1.4m higher rate taxpayers?

Figures from HMRC have revealed that an extra 1.4m Britons have become higher rate taxpayers since the current government came to power so planning in the last quarter of the current tax year has greater relevance to more individuals. Now that the 31 January tax return deadline is behind us, it is time to start thinking of what can be done before 5 April 2014 to maximise your personal tax efficiency.

Property Transactions

Even the previously safe area of selling your home requires more planning and concise record keeping than before. In more recent times HMRC has won victories at Tribunal level due to poor documentation by taxpayers and their inability to demonstrate intent over property transactions. The loss of the last 36 months deemed occupation, tighter rules over time to elect principal private residence and the new Capital Allowance regime from April 2014 will make future property transactions a tax and legal minefield requiring careful planning.

Tips:

  • If you are considering selling your main home in the near future and have not lived there recently, you may be better off selling before 6 April 2014;

  • If you spend most of your time abroad but own a UK property, you may have to pay UK tax upon its sale if this occurs after 5 April 2015.

This is an area where we can help.

Income tax planning - So what can you do?

All of the following planning measures should be considered by most before 5 April 2014. In addition, you should try to maximise the use of your personal allowances and basic rate bands. For those of you who have been paying tax at the higher rates for income and investments there are additional savings available if action is taken.

With the loss of personal allowance for income of £118,880pa (a marginal rate of 60% between £100,000 and £118,880) and the clawback of Child Benefit for higher earners starting above £50,000, pension and gift aid planning can play their part to redress these imbalances.

Pension contributions - Annual Allowance dropping to £40,000 from 6 April 2014

Maximising your pension contributions for 2013/14 can save tax by extending your basic rate tax band. In addition, if you have unused pension allowances from the preceding three years, it could be more beneficial to use them before 5 April 2014.

Gift Aid donations

As with pension contributions, additional rate tax payers can benefit by claiming Gift Aid relief when you give to charity.

As with pension contributions gift aid donations can reduce your “Adjusted Net Earnings” – or the point at which Child Benefit entitlement starts to be withdrawn. For those at the marginal incomes between £50,000 and £60,000 careful planning can safeguard against some or all of the loss of Child Benefit (which can be a significant household contributor).

Bonuses and Dividends

Careful consideration should be given in the last quarter of the current tax year to the timing of bonuses and dividends with reference to your basic rate band and current financial requirements.

Capped Income tax reliefs

With new caps on certain tax reliefs (the greater of £50,000 or 25% of total income) greater care must be taken in the order of loss offset and carry back. If you have current year 2013/14 or potential losses in the next tax year please contact us to discuss since the earlier you address this the clearer the solution will be. Leaving these issues until the January deadline could prove costly.

ISAs

Utilising your ISA allowance each year is a very common sense on-going tax planning strategy. These investments (currently capped at £11,520 and £3,720 for Junior ISAs) do not need to be reported on a tax return as they are tax free and are a great way to obtain tax relief.

Capital gains tax planning

If you have not used your 2013/14 Capital Gains Tax (CGT) Annual Exemption (£10,900), it may be worth reviewing your assets now to see if any gains can be taken to use those allowances or whether you should make an inter-spousal (tax neutral) transfer of certain assets before sale. With current rates of CGT at 18% and 28% and a combined couple exemption of £21,800, the potential saving could be substantial.

If you made a loss on an investment during 2013/14 or own shares which now have a negligible value, it may be possible to claim a capital loss (by making a negligible value claim). In some instances it is possible to offset the loss against your income to provide a greater and more immediate relief.

Seed Enterprise Investment Scheme (SEIS) , EIS and Venture Capital Trusts (VCT)

As highlighted in previous articles these investor schemes (though not without risk) have valuable Income Tax and Capital Gains Tax planning potential. For instance if SEIS shares are issued in tax year 2013/14 you may claim SEIS Income Tax relief as if all or part had been issued in 2012/13. The recent Budget statement introduced an extension to 2013/14 for the capital gains tax (CGT) relief for re-investing gains in SEIS shares, providing the gains are re-invested in 2013/14 or the following year. The extension of the relief is for half the qualifying re-invested amount.

If you would like to talk to someone about your tax planning needs, please contact Jon Miles or Terry Cheesman.