Keep Current with your Tax Affairs!

Before you know it we are half way through another tax year and important personal tax deadlines are approaching. Also, the Chancellor’s Budget earlier in the year has finally been debated in Parliament, and many of the announcements have become law.

Two Important Dates:

6 October 2014

Have you notified HMRC of any possible charge to tax in the 2013/14 tax year? If not then you may still have time to write to them before 6 October 2014. This could prevent a penalty and will bring you into the Self Assessment system.

31 January 2015

Your self assessment tax return for 2013/14 needs to be filed online by 31 January 2015. We can prepare this for you and advise you what needs to be included (e.g. see next paragraph for the High Income Benefit Charge), how to present the return and maximise reliefs. We will also consider if there might be a more tax efficient way of managing your affairs.

High Income Benefit Charge

This was introduced part way into the 2012/13 tax year and certainly caught some people out. Whilst not a tax as such, it is collected through Self Assessment and broadly applies if either parent in the household earns over £50,000 and have been receiving Child Benefit.

New legislation and developments

1. In general, for 2014/2015, individuals with income less than £10,000 (the personal allowance) pay no tax at all. In certain circumstances it will soon be possible for an individual to reduce their personal allowance by a specific amount, and transfer this to their spouse or civil partner.

2.If you own more than one property, which one is your main residence for tax purposes? The main residence relief used to continue for 36 months after you moved out so that owners who struggled to sell were not penalised. However, this has now been reduced to 18 months for all disposals after 5 April 2014. If you have two homes and have resided in both, consider making an election for your second home if it is standing at a larger gain or you are likely to sell it first. However, the rules for the election are set to change from 6 April 2015, so resolving the position before that date may prove to be tax-efficient. There have also been quite a few recent tax cases which have demonstrated that the owner must establish a period of residence (the quality, rather than quantity being important).

3. Contributions into a personal pension scheme can provide tax relief at the individual’s top rate of tax. The tax benefits of pensions and their beneficial use in your business are often misunderstood, and with the new significant changes applying from April 2015 there are potentially even more options for you to consider.

4. Since April 2008, most businesses have been able to claim the 100% Annual Investment allowance (AIA) for investment in plant and machinery, bought outright or on HP. This encompasses not only machinery but also loose fixtures, computer and office equipment, motor vehicles such as vans and lorries (but not cars) and certain fixtures that are part and parcel of the business premises structure. The announcement in the recent Budget that the AIA was to temporarily increase to £500,000 from April 2014 up until 31 December 2015, was welcomed by those businesses that typically buy expensive plant, commercial vehicles etc. These businesses should now review their planned capital expenditure to achieve the maximum tax benefit. If you have an accounting period that spans 1 January 2016, the date on which you incur expenditure could be crucial in terms of the tax relief you receive.

It is worth also bearing in mind that in addition to the AIA, there are other 100% deductions available for investing in certain energy and water efficient technologies, as well as R&D equipment.

And now something different

There are a number of investment assets that have specific tax advantages and should be considered if you already have a diversified investment portfolio. For example, personal motor vehicles are exempt from capital gains tax so investing in classic and vintage cars can yield tax free gains.

Wine is regarded as a wasting asset that is tax exempt, so again, shrewd investments can yield tax free profits. However, any losses you make cannot be set against other gains.

Investment in woodlands can also be tax-efficient but is clearly for the longer term. There is no initial income tax relief but a realised capital gain could be deferred by reinvesting in woodlands, until the land is sold. Income from timber sales is tax free, and the value of the investment can escape Inheritance Tax. If you sell the whole woodland for gain, only the land element is taxable, not the increase in timber value.

Please contact Jon Miles to discuss any of the above in more detail.