Start Planning Now - Recent Tax Developments

Take advantage of the transitional pension input period rules for 2015/2016 by making additional pension contributions for the year

The maximum amount of pension contributions qualifying for tax relief has been doubled to £80,000 for the current tax year. This limit is split over two periods during the tax year being pre and post budget day 8th July 2015. The effect is that if you made a £40,000 contribution before budget day, you can now make an additional contribution up to £40,000 and obtain tax relief.

Take care if you are looking to develop land within the garden and grounds of your main home

H M Revenue and Customs have recently successfully argued that private residence relief should not apply to a plot of land sold for development which was originally within the garden and grounds of the taxpayer’s main residence. The decision demonstrates the importance of careful planning and advice when undertaking these types of arrangements.

Start looking ahead in order to preserve tax relief on buy-to-let loan interest

From April 2017, landlords will start to face a restriction on the tax relief they claim on allowable loan interest and finance costs. If the landlord runs and owns another business, which is not residential letting, it may be possible to refinance to avoid the loss of tax relief on borrowings.

Plan ahead for the changes to the taxation of dividends

As most will no doubt be aware George Osborne announced in the Summer Budget changes to the taxation of dividends. In essence from 6th April 2016 the first £5,000 of dividend income in any tax year will be tax free. Dividends received in excess of this amount will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.

H M Revenue and Customs have begun to release details of how the changes will work in practice and accordingly advance planning should be now be undertaken in order to mitigate the impact of the changes.

A lot of basic rate taxpayers will likely be worse off from next April. Therefore, individuals with portfolio shareholdings should consider transferring some of their shareholdings into ISA’s. Of course this should be considered in tandem with the effects of capital gains tax on transfers.

In addition, owner managed business owners should actively review the cost benefit of withdrawing or postponing dividend withdrawals between now and next April. Business owners who regularly receive large dividends taxed at higher rate may in fact find themselves better off from next April.

Beware the onerous reporting obligations if UK residential property if sold by non-UK resident individuals, trustees, and companies that are closely-held

From 6th April 2015, any non-UK resident disposing of UK residential property will be required to deliver what is known as an “NRCGT return” to H M Revenue and Customs within 30 days of completion of the disposal.

This is irrespective of whether the non-UK resident is registered with H M Revenue and Customs through Self Assessment or not. Penalties may apply for failure to make a return.

The return has to be made on the basis of circumstances prevailing at that time and therefore if there is doubt concerning tax residence status advice should be sought.

For further information and guidance on the above, please contact either Calvin Healy or Jon Miles.