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Top 10 Tax Planning Tips for the Year End
Posted by Andy Richens on 2/22/2012
Now is the ideal time to review your tax affairs, to ensure you do not miss the opportunity to reduce your tax liabilities.
For individuals:
1. Pension contributions paid before 6 April 2012 will qualify for tax relief at your highest tax rate, on gross contributions up to £50,000 for the tax year. Further, you may carry forward un-used relief from the last three tax years (that is £50,000 less the gross amount contributed) providing you held a pension plan in that earlier year. However, the amount you may personally contribute for any year is limited to 100% of your earnings, or £3,600 if higher. Basic rate tax relief will be given at source from your payment, with higher rate relief available through your self-assessment return. For those with large pension funds, the lifetime limit is being cut from 6 April, from £1.8m to £1.5m, and should be reviewed now to decide whether a fixed protection claim be made
2. Up to £10,680 may be invested in an ISA, for income/capital gains tax exemption (up to one half may be invested as cash, free of income tax)
3. A more adventurous investor may be attracted by 30% income tax relief on investments up to £200,000 in Venture Capital Trusts, provided held for 5 years.
4. Additionally, 30% income tax relief is due on a qualifying Enterprise Investment Scheme (EIS) subscription up to £500,000. Further, if you have made a capital gain within the previous 36 months, any investment of the gain in EIS shares will defer the capital gains tax (CGT) that arose, until the EIS shares are disposed of
5. Do not forget donations made to charity, including entrance fees where you have completed gift aid details. Although basic rate relief was given at the time of payment, higher rate payers are entitled to the additional relief
6. If you hold investments, it is possible to realise sufficient proceeds to utilise your annual capital gains exemption of £10,600 for the year, so that no CGT arises. If you have realised gains, a disposal of investments standing at a loss may be used to set-off.
7. However, if you are planning a disposal giving rise to a larger capital gain, you should consider delaying until after 5 April, when a CGT holiday applies for gains reinvested into start up companies (Seed Enterprise Investment Scheme)
8. For married couples and civil partners, ensure that the personal allowance and basic rate band of each is used before higher rate tax is paid, for example by the transfer of investments and assets into joint names
9. Gifts of up to £3,000 each year may be given free of IHT. Additionally, gifts of up to £250 per year may be given to as many individuals as you wish
For businesses:
10. The tax deduction for capital expenditure on plant, machinery, fixtures and fittings is being cut considerably, for expenditure incurred on or after 1 April 2012 for companies (6 April for partnerships and sole traders). The 100% write off is being reduced from the first £100,000 to £25,000, although these limits may be lower still depending on the accounting year end. Bringing forward the expenditure will both accelerate the tax relief, and give rise to a higher annual investment allowance in the year the expense is incurred.
For more information on any of the above, please contact your usual Bishop Fleming Chartered Accountants relationship manager or your local Bishop Fleming office.
All information correct at time of posting.