Tax Planning Checklist

It is the time of year when it is wise to give some consideration to tax planning to make the upcoming tax year as tax effective as possible.  And there may also be some changes in the budget next month that take effect immediately. Here are a few headline issues to consider.

Pension Contributions

This is a good time to consider whether you have any unused pension contribution allowance from earlier years which you should use up before the new tax year comes round and the earliest year’s allowance drops out.  There has been a reduction in the annual allowance from 2016/17 if your total income (including employers pension contributions) is more than £150,000 where the allowance is tapered from £40,000 down to a minimum of £10,000. And remember that if you have a taxable income of between £100,000 – £125,000 you are effectively paying tax on that portion of your income at 60% so it makes a further pension contribution very attractive. If you are planning to make additional contributions then it may be prudent to do so before the budget in March.

Close Company Dividends

If you are the director of a limited company, then thinking about which tax year you take your share of profit may save you tax. The timing of dividends is further complicated by making sure you use the dividend allowance and the different tax rates on dividends.  We are always happy to discuss the most tax-effective way of taking profit from your company.

EIS & SEIS Schemes

Both EIS and SEIS schemes are approved by HMRC and offer attractive tax benefits if the investment succeeds and ease the pain if it fails.  The relief is received on the first tax return after making the investment.  If you are a non-domiciled taxpayer it is possible to transfer the purchase money to the UK without it being considered a taxable remittance.  But remember they are by definition riskier investments.

Gift Aid Contributions

If you are planning to make a gift to charity, then making it using the Gift Aid scheme will potentially offer you some tax relief as well as adding to the income of the charity.  It is possible to carry back Gift Aid contributions into a previous year but there are some details of timing that need to be adhered to if that is going to be effective, so it’s best to consider any gifts before this tax year ends.

ISAs
Making use of the tax free ISA investment allowance of £20,000 or the Junior ISA allowance of £4,368 is a great way to build up a porfolio of tax-free investments.

Personal savings allowance
Consider re-organising your investments with a spouse or civil partner to make full use of the annual savings allowance. That way you can earn £1,000 of interest income each without paying tax.

Child benefit
Keeping your income below £50,000 to avoid the High Income Tax Benefit Charge by making pension contributions and Gift Aid donations

Personal allowance
Keeping income below £100,000 to avoid the withdrawal of the personal allowance by making pension contributions and Gift Aid donations.

Transfer of assets
Considering transfer a share of assets to spouse or civil partner where one pays less income tax, which will in-turn reduce CGT on disposal

Residency & domicile
Reviewing whether you have been in the UK for 15 of the last 20 tax years and will soon become deemed domiciled and unable to claim the remittance basis

Checking Your Tax Code

We are always happy to check you are on the correct code. HMRC are still getting these regularly wrong for high earning clients where a year-end bonus takes them over the £100,000 threshold so it’s worth checking to ovoid a large adjustment when your tax return is filed.

Please don’t hesitate to get in touch with one of the team if you would like to discuss any of these tax planning matters further. If you want advice on other finance issues such as setting up a family trust to mitigate any future Inheritance Tax Liability (and possibly care home fees), we can put you in touch with other professionals in these and other areas.

And if you have not yet paid your tax liability for 2018/19, remember that any unpaid tax as of 1st March 2020 will have a 5% penalty added to it. So, it makes sense to settle this before the end of February.