Pre tax year end planning points for 2016/17

There are a number of important planning measures that you should be considering, and action may be needed before the tax year ends.

Income tax

• If you hold shares in any company, you can receive up to £5,000 in total dividends during the year to 5 April 2017 with no resultant tax liability. Note though, this is a “use it or lose it” opportunity, and so the dividend would need to be paid before 6 April 2017. Speak to us if you have received less than £5,000 dividends since 5 April 2016. Any potential dividend payment would be subject to the company having distributable reserves.

• Consider pension contributions or gift aid donations to either mitigate the withdrawal of child benefit where your income exceeds £50,000, or mitigate the withdrawal of personal allowance where your income exceeds £100,000, or mitigate additional rate tax at 45% where your income exceeds £150,000.

• A pension contribution into your personal pension scheme will also provide tax relief at your marginal rate of income tax. Careful planning will be required in order to ensure current Annual Allowance limits are not breached, resulting in unforeseen tax charges, and note this also needs to be considered for any contributions made into your personal scheme by your employer company.

• If you have lent money to a company there may be an opportunity (“use it or lose it” basis again) for you to be paid interest before 6 April 2017 and gain some benefit from the starting rate and nil rate for savings income, depending on your overall income profile.

• Gift aid donations also qualify for higher rate tax relief and the charity can also claim the basic rate element.

• Gifts of quoted shares and land to charities qualify for full relief against income and are exempt from capital gains tax.

• Review income producing asset ownership between you and your spouse in order to maximize use of personal allowances and basic rate bands.


Investments

• There are many different variants of ISA investments now available, with the “Flexible ISA” and “Innovative Finance ISA” also being introduced last year from 6 April 2016. If you want to maximize your entitlements before 6 April 2017 you should talk to your financial adviser, or we can make an introduction.

• Investments in EIS shares can give you income tax relief at 30% on investments up to £1 million. After three years any capital gain made on sale is exempt and inheritance tax free after two years. Capital gains can also be deferred on your investment.

• Investments in SEIS shares give you income tax relief at 50% on investments up to £100,000. Attractive capital gains advantages can also arise.

• Income tax relief at 30% is available on qualifying VCT investments up to £200,000. Dividends received on units are tax free and after five years gains on sales of units are also tax free.


Capital gains tax

• Make use of your capital gains tax annual exempt amount which is £11,100 for the current year. This exemption cannot be carried forward beyond 5 April 2017.

• Consider the timing of capital gains if your income is likely to fluctuate between 2016/17 and 2017/18 as gains for most assets are taxed at your marginal rate, at either 10%, 20%, or both. However, disposals of (broadly) “residential property interests”, UK residential property sold by non-residents, and certain “carried interest gains” still attract tax at 18%, 28%, or both.

• Consider the use of a main residence election if you have purchased a second home over the last two years and use this as a residence alongside your usual home.

• Consider claiming capital losses for assets which have become worthless within the last four years. Once claimed the losses can be used to offset current or future gains.

• Check whether you meet the conditions to qualify for entrepreneurs relief on business assets (such as shares in your unquoted company) or if they don’t explore opportunities to make them qualify. Gains on sales of business qualifying assets attract a tax rate of 10% regardless of your taxable income.


Inheritance tax

• Review your current will to ensure that it stills meet your requirements.

• Make sure you utilise available exemptions such as the annual £3,000 per donor and £250 for small gifts before 6 April 2017, and consider gifting away surplus income on a regular basis which qualifies as inheritance tax free.

• Invest in inheritance tax efficient assets such as business and agricultural assets.

• Plan ahead for the new residence nil rate band which is being introduced from 6 April 2017.

For further information and guidance, please contact Jon Miles on 01225 325580, or email jm@richardsonswift.co.uk