Year End Tax Planning – 5 April 2016

The end of the current tax year is 5 April 2016 and a small amount of time remains to make any final arrangements which could affect your tax before the deadline arrives.
Following the Budget last week, a number of matters were finally confirmed which could also impact on planning opportunities.
ISA Allowance

The overall ISA allowance for 2015/2016 is £15,240. If you have not fully utilised your allowance in the current tax year, this needs to be undertaken before 5 April 2016 or the allowance for the current year will be lost.

Other Tax Efficient Investments

These include:

  •          Enterprise Investment Scheme.
  •          SEED Enterprise Investment Scheme.
  •          Venture Capital Trust

Subject to qualifying conditions being met, these can provide income tax relief at 30% or 50% and, if made before 5 April 2016, there is an opportunity to carry back the income tax relief to the previous year.

Capital Gains Tax

If you do not use the annual exemption by 5 April 2016, it will be lost.

If you have gains over the annual exemption of £11,100, it might be useful to defer the excess until after 5 April in order to use the following year’s annual exemption.

In addition, the rates of capital gains tax are reducing after 5 April 2016 for gains on certain assets and it may be worth deferring any gains until after 5 April 2016 to obtain the reduced capital gains tax rates (if applicable).

Pension Contributions

There are a number of considerations here including:

  •          Making a personal pension contribution prior to 5 April 2016 to reduce taxable income and possibly the impact of the child benefit charge.
  •          5 April is the last opportunity to rescue any unused contribution relief from 2012/2013.

Further longer term planning in terms of pension contributions will include:

  •          Salary sacrifice – this is a very efficient manner for employers and employees alike to save NIC where a lower salary is replaced by an employer pension contribution.
  •          For owner managed businesses, contributions of up to £40,000 a year into registered pension schemes can be made and if your annual allowances in the last three years haven’t been used, this can provide an opportunity to extract up to £180,000 in this manner.

Although pensions are long term planning arrangements, the whole of your pension fund can be accessed when you reach 55 years old and this is therefore becoming an appealing tax planning tool.

Post 6 April 2016 Planning

With the new rates and allowances announced for 2016/2017, there is an opportunity to receive income of up to £22,000 a year tax free by using the following:

  •          Personal allowance – £11,000.
  •          Personal savings allowance – £1,000.
  •          Dividend allowance – £5,000.
  •          The Starting Rate Band on savings income – £5,000.

This can be achieved for basic rate tax payers at certain levels of income – on the basis that you achieve the right mix of earnings, dividends, income and savings.

If you want to discuss any of the above, please contact your local Perrys branch.

Article written by Declan McCusker