With another filing deadline now behind us, it is time to turn our attention to identifying opportunities which can help reduce your tax exposure. Below are a reminder of recent or pending tax changes together with a few ideas on how the right tax planning at the right time can help mitigate your overall exposure in the 2014/15 tax year and beyond.
Personal Allowance Restriction
If your income is between £100,000 and £120,000, your personal allowance is restricted and potentially phased out in full. The effective tax rate for this income bracket is 60%. It is possible to reduce your exposure to this 60% tax rate by making pension contributions and charitable donations. For every £2 paid into a pension or donated to charity, £1 of UK personal allowance is reinstated.
To put this into context a £120,000 earner could increase their pension pot by £20,000 at a cost of just £8,000 after all tax reliefs and the reinstatement of their personal allowance.
Annual Pension Allowance
The pension annual allowance is now £40,000 per annum. However it is still possible to utilise any unused allowances from the tax years 2011-12 to 2013-14, still based on the previous £50,000 annual limit.
For those who pay tax at the UK’s highest rate of tax, the cost of contributing £40,000 to your pension fund can be as low as £22,000 after tax relief.
Changes have been made to the way pensions from defined contribution schemes can be withdrawn from 6 April 2015. These changes should make it more flexible for those aged 55 or over to access their funds, without being subject to unauthorised payment charges of 55%. If you are considering drawing retirement benefit it is important you obtain professional advice in order to understand the options available to you and there implications.
CGT for Non-Residents
From 6 April 2015, non-residents will be liable to capital gains tax on the sale of UK residential property. The application of these rules will result in growth in value after 5 April 2015 being subject to CGT when the property is sold. These rules are complex; they introduce a new reporting regime and prescribed provisions in respect of claiming Main Residence Relief. If these rules affect you and you would like further advice please contact us.
If you are a non-domiciled taxpayer living in the UK, certain tax residency milestones can impact your tax status.
- For those who have been resident in the UK for some part of at least 7 out of the last 9 tax years an annual charge will apply to claim the remittance basis in future years.
- This charge is currently set at £30,000, rising to £50,000 if you have been UK tax resident in some part of at least 12 of the previous 14 tax years.
- From 6 April 2015, Individuals who have been UK tax resident in some part of at least 12 of the previous 14 tax years are liable to pay a charge of £60,000 in order to access the remittance basis of taxation. Those who are UK resident in 17 of the last 20 years will have to pay £90,000 to claim the remittance basis each year.
- For longer term residents, you become “deemed domiciled” in the UK for inheritance tax purposes once you have been here for some part of at least 17 out of the last 20 tax years. This brings your worldwide estate into the UK inheritance tax net.
There may be planning opportunities particularly for those approaching or affected by the above watersheds, and we would be pleased to provide you with more detailed advice to help mitigate your UK tax exposure as appropriate.
The following table summarises the main tax allowances available, in most cases they are wasted if they are not used before the end of the tax year:
|Type of relief||Allowance 2013/14||Relief|
Up to £190,000
20% to 60%
Tax Free Growth
Tax Free Gains
|Venture Capital Trusts||
|Enterprise Investment Scheme||
|Seed Enterprise Investment Scheme||
50% to 64%
The following opportunities should always be considered toward the end of each tax year but are often overshadowed by “headline” changes in legislation. Nevertheless, these are key planning points that should not be disregarded when looking at your year-end tax position and in order to utilise the allowances available:
Tax Efficient Investments
- Enterprise Investment Schemes (EIS)
Key benefits: 30% income tax reducer, capital gain tax exemption after 3 years, inheritance tax exemptions, capital gains tax deferral, carry back from 2014/15 to 2013/14.
- Seed Enterprise Investment Schemes (EIS)
Key benefits: 50% income tax reducer, capital gain tax exemption after 3 years, inheritance tax exemptions, capital gains tax exemption for proceeds reinvested of up to 50% of the gain, carry back as for EIS.
- Social Investment Tax Relief (SITR) (new from 6 April 2014)
Key benefits: 30% income tax reducer
- Venture Capital Trusts (VCT)
Key benefits: 30% income tax reducer (if you are a subscriber and hold the shares for ≥5 years), capital gain tax exemption, tax-free dividends.
- Individual Savings Accounts (ISA)/Junior ISAs (JISA)
Key benefits: Tax free growth and no capital gains tax on exit, can be a cash ISA or Stocks & Shares. JISAs have the same tax free benefits as an ISA and can be set up to save for children under the age of 18.
Capital Gains Tax (CGT)
- If you have assets which have increased in value you could make use of your CGT annual exemption and uplifted base costs. Rebasing could be achieved with shareholdings through ‘Bed and Spouse’ and ‘Bed and SIPP’, ‘Bed & ISA’ transactions. Please contact us for more information on these planning techniques.
Utilise Your Spouse’s Tax Free Allowances, Exemptions & Lower Tax Bands
- You and your spouse/civil partner are entitled to the same tax free allowances and exemptions. You should consider if it is appropriate to transfer assets or hold them in joint names in order to reduce your tax liability next year.
Timing of Dividend Payments
- If you are a company director/shareholder and can control or influence the timing of dividend and/or bonus payments then this should be reviewed before 5 April for any potential tax benefit.
Inheritance Tax (IHT)
- Key benefits: Ensure you don’t waste your annual allowance of £3,000 and consider utilising the exemption for ‘gifts out of income’, which is often overlooked.
If you would like to arrange a consultation to discuss your personal circumstances please contact us.
The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT). We are not Financial Advisors and are not regulated by the Financial Conduct Authority (FCA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to one who we have worked with in the past who can take care of the FCA aspects of any advice you require. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.