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There’s still time to save tax this year.

Wednesday, March 13, 2013    

It’s that time of the year again where tax takes centre stage and can affect you whether or not you are in business. There are a number of strategies to consider which can help you to minimise your tax liability, some of which, this will be the last chance to use them.

Personal allowances: are you making the most of them? 

The tax-free personal allowance for 2012/13 is £8,105 for those under 65. If your spouse or partner has little or no income consider transferring income or income generating assets to them.  However, care should be taken to avoid falling foul of the settlement legislation which governs “income shifting”.

Savings: are they taxing?

ISAs are still proving popular despite the interest rates continuing to be suppressed. For 2012/13 all adult savers have a maximum investment limit of £11,280, of which no more than £5,640 can go into a cash ISA. You have until 5 April 2013 to make your 2012/13 ISA investments. 

Is your child double dipping? 

16-17 year olds can invest up to £5,640 in a cash ISA. In addition, Junior ISAs, for those aged under 18 who do not have a Child Trust Fund account, allow investment of up to £3,600 in 2012/13. Therefore, it’s possible that a 16-17 year old could take advantage of both allowances this year.

If you have your own business you may consider employing your children…so long as you pay them the going rate for their services. Don’t forget the new RTI rules too.

Pensions: are they growing old with you? 

Investing in a company or personal pension scheme allows you to obtain tax relief at your highest rate, which could be up to 50%.  For pension contributions to be allowed against your 2012/13 income they must be paid before 6th April 2013.

Currently tax relief is available on contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings. Unused allowances, subject to the annual allowance of £50,000, may be carried forward for up to three years. For the future, there are proposals to reduce the annual allowance by a further £10,000 to £40,000 in 2014/15 along with a reduction in the lifetime allowance from £1.5m to £1.25m

The top rate is falling: not a lot

From 6th April 2013 the top rate of tax is set to fall from 50% to 45%. If you currently find yourself subject to this tax band, you may want to consider delaying dividend payments to the following tax year.

Converse to this, you may want to consider maximising your pension contributions (within certain limits) before 5 April 2013 – doing so would allow you to obtain relief at the higher rate of 50%.

Whilst you look to minimise your tax do consider the wider picture. Consider the family as a whole by maximising your tax-free opportunities and keeping your marginal rates as low as possible.

Capital Gains Tax (CGT)

If you are sat on assets with gains you may consider partial sales to mop up the 2012/13 CGT allowance of £10,600. You may also consider sharing those assets with your spouse so that you both fully use your personal CGT allowance. CGT is currently 18% for standard rate taxpayers and 28% for those in higher rate. Entrepreneur’s relief, if available to you, will reduce the rate to 10%.

Though not for everyone, there is the Enterprise Investment Scheme (EIS) which provides income tax relief of 30% on new equity investments. Hold the shares for three years and they are CGT free. An additional advantage is that any dividends that are paid out are free of income tax too.

Also to consider are the Venture Capital Trusts (VCT), which also give 30% income tax relief, and generous CGT and dividend advantages too. The Seed Enterprise Investment Scheme (SEIS) provides income tax relief of up to 50% and a CGT holiday for investments made. The SEIS is proving popular with crowd funding platforms.

Inheritance tax: lifetime planning for big tax savings

The Inheritance tax (IHT) threshold, officially known as the nil-rate band, has been frozen at £325,000 until 2015.

IHT is currently payable at 40% on total assets exceeding £325,000 at death. However, with careful planning and by utilising the available allowances, it may be possible to reduce your liability to IHT. The key here is “planning” - take the time to review your affairs, as it is not something you leave to the last day of the tax year.

That said, where possible, make sure you utilise the annual IHT exemption for gifts before 6 April. This is £250 per recipient, per year, plus up to £3,000 to cover larger gifts (any unused amount may be carried forward to enhance the following year’s exemption). Gifts covered by the exemption do not form part of the estate for IHT purposes.

Business expenses: it’s in the timing

The coming 1% reduction in the main rate of corporation tax in reality isn’t going to affect many business decisions. However, the temporary increase in the annual investment allowance from £25,000 to £250,000 may. This means that the majority of businesses can now claim a year-one write off for expenditure on most types of plant and equipment up to £250,000 for a limited two-year period from 1st January 2013 – though this does exclude cars.
This may be the time to upgrade your equipment to improve efficiencies and profit. There’s too much to list everything here, but hopefully there is a little bit for everyone.

As published in the Grimsby and Cleethorpes Chronicle Newspaper March 2013

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