Tax Planning

YEAR END PLANNING TO 5 APRIL 2017

With the end of the tax year approaching, this is a good time to review your finances to see if any action should be taken by 5 April 2017.

 Ensure Personal Allowances (£11,000) and basic rate bands are fully utilised;  where possible, consider further dividends and/or equalising incomes between spouses, as personal allowances are clawed back once gross income exceeds £100,000. There is a 45% tax rate on income exceeding £150,000. Gift Aid donations and personal pension contributions can reduce the tax liability.

 Consider delaying income until after 5 April 2017 to delay the payment of tax.

 If your freelance profits/rents have fallen in 2016/2017 compared to 2015/2016 there may be scope to reduce the level of the 2016/2017 payments on account.

 Use up annual Capital Gains Tax allowance, £11,100, by 5 April 2017 or create losses to either reduce current year gains down to the annual allowance or to carry forward against future gains. Review any shares that are of negligible value, as it is possible to crystallise a capital loss.

 Review capital expenditure for the Annual Investment Allowance (AIA).

 Ensure that your company qualifies as a trading company for capital gains  Entrepreneurs’ Relief, to obtain a capital gains tax rate of 10% when disposing of the business.

 Consider pension contributions; the annual maximum gross contribution is £40,000 with scope to use unused relief from the 3 previous tax years. The Life Time Allowance (LTA) was reduced to £1m from 6 April 2016. If nearing the LTA, take independent financial advice about Fixed Protection.

 There have been significant changes to the way that pension benefits can be taken, as from 6 April 2015, so do discuss the options with an IFA.

 Maximise contributions to tax efficient investments such as ISAs (£15,240 maximum for 2016/2017), Enterprise Investments Schemes (EIS), Seed Enterprise Investment Scheme (SEIS) & Venture Capital Trusts (VCTs). Junior ISAs are now available for children (£4,080 in 2016/2017).

 Use up the £3,000 annual Inheritance Tax small gift allowance. The 2015/2016 allowance can then be used up, if still available.

 Review the Principal Private Residence election where another residential property has been acquired within 2 years that may be lived in as a home. The last 18 months of ownership are exempt.

 Review your family income, if in receipt of Child Benefit, as the benefit is clawed back if the higher earner exceeds income of £50,000.

 Review your company car position as the taxable benefit increases yearly and tax savings are possible with lower emission cars. If private mileage is paid by your employer, see if it would be more tax efficient to pay the mileage personally or refund the company by 5 April to avoid the taxable benefit.

2017/2018 TAX YEAR

Let us know if HMRC issues any tax codes.

Personal allowances increase to £11,500 and the 40% tax rate starts at income £45,000.

A Marriage Allowance of £1,100 is available for non taxpayers to pass to basic rate taxpaying spouses. The maximum tax saving is about £220.

£1,000 tax free interest for basic rate taxpayers and £500 tax free for higher rate tax payers can be received. There is no tax-free allowance for those with income over £150,000. There is a 0% tax rate on the first £5,000 of interest income if total income is under £16,000.

The maximum pension contribution of £40,000 pa is scaled down to £10,000 once income exceeds £150,000. The Lifetime Allowance is now £1m.

The first £5,000 of dividend income is exempt, then 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

2016/2017 underpayments of up to £3,000 can be collected through the 2018/2019 tax code, if the return is submitted before 31 December 2017.

For the self employed, Class 2 National Insurance (£2.80 per week) is now be collected through the self assessment tax return with tax and Class 4 liabilities.

A cap of the greater of £50,000 or 25% of the taxpayer’s income applies on various loss reliefs, such as trading losses and property losses, so if significant losses are envisaged, action should be taken as soon as possible.

To qualify for Furnished Holiday Lets, the property must be actually let out for 105 days and available to be let out for at least 210 days.

The annual tax-free allowance for Rent-A-Room is £7,500.

Corporation tax rate falls to 19% from 1 April 2017.

GENERAL TAX PLANNING

 Review the possibility of incorporation, there are still tax and NI savings possible.

 Monitor your VAT turnover, the VAT threshold is currently £83,000.

 Review cash balances to see if there is scope to improve the interest rates.

 Consider inheritance tax planning, using the annual gift allowance (£3,000), making regular gifts out of surplus income and review Wills to ensure the provisions are up to date. Check that life policies & Death-In-Service benefits are written in trust. Grandparents can consider skipping a generation. Deeds of Variation are still available to amend the Wills within 2 years of the date of the Testator’s death.

 ISAs maintain their tax-free status if inherited from a spouse.

 Tax relief for loan interest on residential rental properties is being restricted to basic rate tax as from 6 April 2017.

 Inheritance tax can be reduced after only 2 years, by investing in certain unquoted trading companies, such as those listed on AIM.

 Complicated rules have been introduced to increase the Nil Rate Band from £325,000 to £500,000 where the Estate includes the main residence, starting from 6 April 2017.

 Review NI contributions to ensure that the State pension is maximised.

 If taking pension benefits, from age 55, ensure that all your options are reviewed, including the tax-free lump sum, pension drawdown and maximising annuity rates.

 Non residents may have to pay capital gains tax on UK property sales from 6 April 2015.

 If you have undisclosed income overseas, there are disclosure facilities to minimise penalties and the possibility of criminal charges.

 There are changes to the rules relating to domicile from April 2017. These measures include the following:

 Non-UK domiciled individuals with a domicile of origin outside the UK will be deemed to be domiciled in the UK for all tax purposes – income tax, capital gains tax (CGT) and inheritance tax (IHT) - after they have been resident for 15 out of the last 20 tax years;

 Individuals with a UK domicile of origin will be unable to take advantage of a subsequently acquired foreign domicile at any time when they are UK resident, irrespective of the number of years they spend here;

 Non-UK domiciled individuals will no longer be able to shelter UK residential property from IHT by holding it through an offshore company or other offshore vehicle. This will apply to property held through companies owned by both individuals and trustees.

Please note – spouses includes civil partners.

The content of this guide is for your general information and use only and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on an individual’s personal circumstances.

 ©Lindsey Sherman and Associates Ltd.  2010: Registered Office Copthorne Farmhouse, Main Street, Great Ouseburn, York. YO26 9RE