With days to go until the end of the 2015/16 tax year, tax experts at chartered accountants Blick Rothenberg LLP provide a snapshot of last-minute tax planning tips from property tax changes to savings, ISAs, pensions, dividends overhaul and maximising personal tax-free allowances to get financial affairs in order by 6 April
Nimesh Shah, partner at Blick Rothenberg, said: ‘The recent Budget made some changes for the coming tax years – some of which will come into force with effect from 6 April 2016 and some from 6 April 2017. However, opportunities to achieve tax efficiency still exist for the current tax year and need to be actioned before the start of the new tax year next week on 6 April 2016 to avoid missing out.’
The team at Blick Rothenberg has produced the following checklist of tax savvy moves.
Self assessment tax returns
When preparing your next self assessment tax return, include all the charitable donations made during the tax year to claim tax relief. Also, you can include charitable donations made after the end of the tax year up to filing your return and carry these back. But remember, you cannot claim for relief for these donations again next year so keep a record of what you have claimed. Include relief for any personal pension contributions made.
If you have used your personal car for your employment and your employer has reimbursed less than the approved mileage allowance payment (45p for the first 10,000 miles and 25p thereafter), claim the difference as an allowable deduction.
If you are a member of any professional institute required for your employment, include the cost of the subscription as an allowable deduction.
Expenses for property rental
If you are self-employed or rent a property, claim all your expenses but make sure you have a record of all expenses claimed.
If you have sold any assets and realised a loss, make sure you claim the loss on your tax return. If you do not claim the loss within four years, you cannot then claim it subsequently.
Capital losses for the tax year 2011/12 not previously claimed should be claimed by 5 April 2016.
Capital gains tax
Weigh up the tax implications of realising capital gains before the end of the tax year. The capital gains tax (CGT) annual exemption is £11,100 for 2015/16 – if you do not use the annual exemption it cannot be carried forward and is lost. Consider realising capital gains so it is fully utilised.
If you haven’t used your annual exempt amount then it may be worthwhile accelerating your gains in to the 2015/16 tax year, in order that some (or all, depending on the level of gain) will be free from tax. However, accelerating gains in to 2015/16 will bring your tax payment date forward to 31 January 2017.
If you delay making the gains until 2016/17 then not only will the CGT rate be lower (reducing to 20% from 28% for higher rate tax payers on 6 Aril 2016), but your tax payment date will be deferred until 31 January 2018 – a year of interest free credit from HMRC!
Gift assets to your spouse or civil partner so that they are able to utilise their CGT annual exemption of £11,100.
Where you expect to realise a significant capital gain, consider delaying the disposal until after 5 April 2016 – this will defer the date by which the tax is due by 12 months.
It may be appropriate to delay the disposal to after 5 April 2016 as the CGT rate is reducing to 10%/20% (other than for disposals of UK residential property).
Review your portfolio and transfer assets between spouses to maximise use of the CGT annual exemption / losses.
Property taxes and SDLT changes
The reduced capital gains tax (CGT) rates for 2016/17 onwards have an 8% CGT surcharge applied for sales of residential property.
Note that if you are purchasing a second residential property, completing before 1 April 2016, you will save the 3% stamp duty land tax (SDLT) surcharge which is effective from that date.
If married, consider whether a jointly owned asset could be held more effectively for income tax purposes (Form 17) – for example, let property (but you need to watch SDLT if there are mortgages).
Review mortgages on let property in anticipation of proposed reduction in tax deductibility of interest from 6 April 2017 – possibly seek replacement debt with better interest terms.
For property let furnished – the wear and tear allowance will go from 6 April so hold off replacing sofas/beds, etc, until post 5 April when you will be eligible for replacement allowances instead of wear and tear.
Inheritance tax and IHT planning
Use the inheritance tax (IHT) annual allowances and exemptions to pass wealth down the generations. You can give away up to £3,000 a year exempt from IHT, without having to survive seven years, and if you did not give away any in the prior year, you can use the previous year’s £3,000 as well.
Each individual can make gifts of up to £3,000 in total each year without any IHT implications. If the £3,000 exemption was unused in the previous tax year, the exemption can be carried forward so the maximum available exemption can be up to £6,000.
Other exemptions from IHT for gifts are available, such as the small gifts exemption allowing gifts of up to £250 to any number of people and gifts in consideration of marriage of up to £5,000 by a parent.
Savings and ISA allowance
Make full use of ISA allowances – including junior ISAs. Use your annual ISA limit for 2015/16 which is £15,240, and can be split however you choose between cash and permitted investments, such as stocks and shares.
But, if you are using your ISA allowance before the end of the tax year, beware that some banks and building societies are not changing their rules in line with the flexible New ISA (NISA) rules, which come in to effect on 6 April this year.
The NISA rules allow you to take money out of your ISA and re-contribute it in the same tax year without it counting twice towards your annual ISA limit, but many providers are not allowing the same flexibility.
So if you’re likely to need access to your savings during the next tax year, an ISA, even a NISA, may not be the best option for you.
With the introduction of the new savings allowance, allowing a basic rate tax payer to earn up to £1,000 of interest income before paying tax on this income, means normal savings accounts can be as tax efficient as an ISA.
Consider using the junior ISA limit for 2014/15 which is £4,080 for children under the age of 18.
Maximising tax-free personal allowance
Your personal allowance is phased out where your income is between £100,000 and £121,200 resulting in an effective rate of tax of 60%.
If your income is within this range, consider making pension contributions or charitable donations to reduce the impact of losing your personal allowance.
If a spouse or civil partner does not have sufficient income to utilise their personal allowance (£10,600 for 2015/16), or their basic rate and higher rate tax bands (20% on income up to £31,785 and 40% on income between £31,786 and £150,000), the higher earning spouse or civil partner may gift income producing assets to them.
Any UK resident individual can contribute up to £2,880 (net) into a pension, irrespective of their earnings, and the pension provider is able to obtain 20% tax relief, so the policy is credited with a gross contribution of £3,600. Therefore, consider contributing to a pension for a non-working spouse/civil partner or children to benefit from £720 tax relief for each person.
Dividend tax allowance mitigation
From 6 April 2016, the notional dividend tax credit of 10% will be abolished and a new dividend tax allowance of £5,000 per annum will be introduced.
The tax rates will also change for dividend income in excess of the £5,000 allowance: 7.5% for basic rate payers; 32.5% for higher rate payers; and 38.1% for additional rate payers.
This will trigger an actual tax increase for those with savings and dividend income in excess of £16,000 in 2016/17. Those who are able to do so may wish to consider whether it is worth accelerating dividends to receive them prior to 5 April 2016.
Review your portfolio and transfer assets between spouses to push anticipated dividends into the hands of the spouse with lower income.
Consider making Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) investments.
Pensions planning for high earners
Be ready for the changes to the maximum annual pension contributions for those individuals with income over £150,000.
The 2016/17 tax year will introduce a tapered annual allowance so that those with income above this threshold will have the amount they (and their employer combined) can contribute to their pension fund with relief, reduced by £1 for every £2 over the threshold.
Therefore, someone with income over £210,000 will only be able to make a maximum of £10,000 to their pension pot without incurring a charge on the excess.
This will be particularly important for those whose employment earnings are close to or above the £150,000 limit and who have other income or have their employers making contributions. If unsure, seek advice from your tax or pensions adviser.
Draw from pension tax efficiently to use up elements of ‘bands’.
About the authors
This article was written by Nimesh Shah, partner; Susan Spash, partner; Genevieve Moore, partner; Suzanne Briggs, director and Paul Haywood-Schiefer, assistant manager at chartered accountants Blick Rothenberg LLP