Now is the time to consider tax planning opportunities before the tax year ends on 5 April. Here’s some of our ideas !
Where one spouse has no taxable income, the other spouse can transfer up to 10% of their personal allowance to their partner if the lower earner spouse has an income of £11,000 or less. This claim can save you up to £220 worth of tax and can still be claimed for the tax year 2015/2016.
From 6 April 2016, a personal savings allowance (effectively a nil rate income tax band on savings income such as bank or building society interest) is available to each individual taxpayer. The allowance amount to £1,000 per year for basic rate taxpayers or £500 for those liable at the higher rate.
Also, from 6 April 2016, a tax-free dividend allowance of £5,000 is available to each individual taxpayer.
Gifts that amount to less than £250 to the same person in a tax year are exempt from IHT. In addition, gifts totaling £3,000 in a tax year are also exempt. If all or part of this latter exemption remains unused, the balance can be carried forward only one year but used only after the exemption for that later year.
Invest the maximum amount in ISAs by 5 April 2017. Withdrawal of funds from an ISA does not involve the loss of tax relief already given. If an ISA is designated as ‘flexible’, you can withdraw and replace funds during the same tax year without reducing your current year’s allowance.
Salary v Dividends
The new dividend allowance and the dividend tax rates that apply from 6 April 2016 have fundamentally altered the relative merits of salary and dividends as a means of extracting profits from companies. While many companies will have addressed this already, the period up to 5 April may be the final chance to get it right for 2016/17.
From 6 April 2017, the tax and NI advantages previously gained by providing benefits-in-kind through salary sacrifice arrangements will be limited.
Transitionally, the new restrictions won’t apply to agreements made before 6 April 2017 which remain unchanged on those relating to other cars, employer-provided accommodation or school fees they will take effect from 6 April 2021, and on others from 6 April 2018.
Save tax by investing in Enterprise Investment Scheme and Seed Enterprise Investment Scheme, Venture Capital Trust Units, and Qualifying Social Enterprises. The various tax advantages include up-front income tax relief, and the possibility of matching and deferring capital gains.