As we continue to read more in the press about the resources that HMRC are being allocated in order to fight the good fight and eradicate tax avoidance and abusive behaviour, you would be forgiven for thinking that not only do we continually appear to be stuck on repeat, but that any sort of tax planning at all, in any way shape or form, is morally repugnant.
There are, however, simple ways to save tax, some of which the Government actively encourage you to undertake.
Use it or lose it!
A lot of basic tax planning involves making the most of the allowances that are afforded to you by HMRC. They do, however, require you to act before 5 April 2014, so we recommend you beat the rush and do it now.
Take full advantage of the opportunity to gain relief by putting some extra funds in to your pension. A contribution of £800 is met with relief of £200, and is higher if you are a higher rate or additional rate tax payer.
The maximum qualifying amount for relief is also set to fall from £50,000 to £40,000 from 6 April 2014. Given that the unused relief provisions (3 years prior to the current tax year) are based on the qualifying amount at the time of contribution, there is the potential to secure relief on up to £40,000 of contributions that will not exist after 5 April 2014.
Finally, for family members that are not earning, stakeholder pensions are effective and employer contributions can be very beneficial.
Capitalise on tax free investments (e.g. ISAs) and utilise both your own and family’s annual allowances. Whilst the income arising from ISAs are tax free, some of the rates that are offered are not the best, so we would recommend you shop around.
With the current Annual Exemption amounting to £10,900 per individual, it may be worth reviewing all of your current assets to see if there are any that are pregnant with gain that can be disposed of to utilise this annual tax free amount.
It may also be worth looking to see if any shares are pregnant with loss to offset any other gains made during the year.
Finally, whilst ‘bed-and-breakfasting’ is not longer effective, there are other alternatives to circumvent the problem.
There is the potential to gift and income producing assets to a lower earning spouse, in order to utilise any unused lower rate tax bands.
Couples in receipt of Child Benefit, where one individual is receiving taxable income in excess of £50,000 per annum, may have to repay some of this at the end of the year. It is therefore worth looking at your combined position, and if possible, take steps to split income between spouses, or if not available, look to mitigate your liability by pension or charitable donations.
You can reduce the value of your taxable estate by giving away money or assets of up to £3,000 per annum per spouse.
There are also small gift exemptions, and the option to give tax free gifts ‘out of income’, all of which reduce the potential to IHT at 40%.
Subscriptions to shares in Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) can attract considerable income tax relief, and under EIS also allow the deferment of CGT on any asset disposed of during the year.
Investment in Seed Enterprise Investment Scheme (SEIS), created to assist small start up companies, if correctly structured can even attract tax relief in excess of 100%.
Whilst at this point in the year, it may be too late to make any significant effect to the current tax year, reviewing your investment prior to the start of next tax year may help with your taxable income. Depending on the level of other sources of income, it may be wiser to switch your investments to capital growth as opposed to income producing.
Whilst this may seem a bizarre piece of advice, there are ways of extracting funds out of your company by way of capital by liquidating your exisiting company. The methods of liquidating depend on the level of reserves within the company, but thanks to our unique relationships within the industry, even once costly formal liquidations can now be dealt with at a fraction of what other firms are offering.
This list in itself is not exhaustive, and there are a whole host of other tips and advice that we can recommend, following a more complete review of your affairs.
Jason Munro, Tax Director at Lowtax Limited