The End Is Nigh….. So Plan Now! Burton Sweet’s latest column
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February 6, 2012
With the end of the tax year on 5 April rapidly approaching, now is an excellent time to be making sure your personal and business affairs are structured in a tax efficient way ready for the new tax year, and that this year’s allowances has been used. Here are our top ten tax tips….
1. Use your ISA allowance – An ISA is a tax free wrapper for your investments. You can invest up to £10,680 in the current tax year and you can hold a mixture of cash and shares. No more than £5,340 can be in cash. Interest and all income and capital gains on shares held in your ISA are tax free. So use this year’s allowance while you still can.
2. If you are a higher rate taxpayer, then you can contribute up to £50,000 per year into your pension fund. In addition if you invested under £50,000 in the previous 3 tax years you may be able to contribute even more. Speak to your IFA for more details.
3. If you have a business, consider your capital expenditure. The Annual Investment Allowance, which gives tax relief for expenditure on large, capital items such as plant and machinery, is being cut from £100,000 to £25,000 at the end of this tax year (or 1 April, for companies). If you are considering buying capital items, timing is crucial!
4. On a similar note, Enhanced Capital Allowances are available for certain items of energy efficient and water efficient plant and machinery. ECA’s give 100% relief for qualifying purchases, however these reliefs are only available for items on the lists published at etl.decc.gov.uk/etl and wtl.defra.gov.uk. Therefore, if your business is planning on buying items such as boilers or air-conditioning make sure you check the lists as a little research could save you tax!
5. If you are thinking of buying a new car through your business, consider buying a low emissions car. Cars will emissions of no more than 110g of carbon dioxide per kilometre qualify for favourable tax treatment, for both you and your business. You can check the emissions of any car before you buy at carfueldata.direct.gov.uk.
6. If you are married, then make sure you and your spouse hold assets which produce income, such as shares and rental properties, in the most tax efficient way. If you pay higher rate tax and your spouse pays basic rate tax or no tax at all, then considering giving him or her some of your income producing assets will reduce your combined tax bill. It’s important to think as a family.
7. If you have a large Income Tax liability for the current year, or if you have made a significant Capital Gain, then you might want to consider buying shares in an Enterprise Investment Scheme (EIS) company. A qualifying investment will give you 30% Income Tax Relief and you can defer all or part of a Capital Gain made between 12 months before and 3 years after the investment. Bear in mind that such investments are potentially high risk and you should take Independent financial advice from a qualified IFA before making this type of investment.
8. Use your Capital Gains Tax annual exemption. You may make gains – profit on the sale of capital assets such as shares– of up to £10,600 this year tax free. Also, remember that both you and your spouse have an allowance, so that it a potential tax free amount of £21,200!
9. Use your inheritance tax annual exemption. You may give away – for example, to your children or grandchildren – capital assets worth up to £3,000 per year without triggering an inheritance tax liability. With inheritance tax at 40%, this will save your estate £1,200 for each year you use your exemption.
10. Finally, if your estate is likely to pay inheritance tax and you have more income than you need, you can reduce the scale of the problem by making gifts out of surplus income. This does not use up your annual exemption and you can give away as much income as you do not need to live on.
If you’d like to talk about year-end tax planning, or if you would like to receive a copy of our Year End Tax Planning Strategies brochure, then please call me on 01452 305651 or email me at rachel.finch@burton-sweet.co.uk.
