Year End Tax Planning – Points for review before 5 April!
CODE NUMBERS
Check your code to ensure you have been given the correct personal allowances, including relief for pension contributions and gift aid donations if liable to higher rate tax.
PENSIONS
With a general election a few weeks away it cannot be certain that the current generous reliefs will remain in place. It is important that you review your pension arrangements and utilise, where possible, any unused relief available from earlier years which might otherwise be lost. This is particularly important for higher rate earners.
GIFT AID
Unlike pension contributions, charitable donations can be carried back to the year before as long as they are made before the tax return is submitted. This can be a useful mechanism for someone paying tax at a higher rate in 2014-15 but not in 2015-16. This is because charitable donations will reduce the liability at the higher rate
SAVINGS
There is no carry forward mechanism for the £15,000 new individual savings account (NISA) annual allowance. It is a case of use it or lose it. So where possible, make sure you have utilised your full allowance before 5 April. Parents can also contribute to junior ISA’s for their children without being taxed on the income. From 6 April 2015 it will be possible to convert child trust funds to junior ISA’s.
Investments in enterprise investment schemes (EIS) and seed enterprise investment schemes (SEIS) can be carried back to the previous tax year to claim income tax relief. EIS can also be used to defer capital gains arising up to 3 years ago. Seed schemes offer a different relief in that 50% of gains arising in the current or previous tax year are rolled over into SEIS shares and exempted from capital gains tax.
The end of year deadline will be relevant for those who wish to claim income tax relied in 2013-14 or who have gains arising either last year and want to obtain the SEIS exemption or up to 3 years ago and claim the EIS relief.
CAPITAL GAINS TAX
Everyone, including children who are tax residents in the UK, are entitled to the capital gains tax annual exemption of £11,000. This exemption is useful if you have a share portfolio (or similar assets which are easy to buy and sell) and can dispose of shares or assets to use the annual exemption each year. If you already have a gain in excess of £11,000 or have other assets standing at a loss, consider crystallising that loss by selling the asset before 5 April to offset against the gains.
ONLY OR MAIN RESIDENCE RELIEF
The rules for main residence relief will change on 6 April 2015. After this date you will only be able to elect for a property to be treated as your main residence if you meet one of the following conditions:-
- You are a tax resident in the same country as the property you wish to make your own residence: or
- You spend at least 90 nights in the property (or if more than one property is owned in that country, 90 nights between all properties).
So a UK resident individual who owns an overseas property will only be able to elect that property if they spend at least 90 nights in the property. If you have an overseas property and have not made an election you may wish to consider making, if possible, an election before 5 April.
For further information contact Green & Co.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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