Various tax planning opportunities can be considered prior to the tax year end, on 5 April and in this article I have outlined some possibilities which could help to minimise tax liabilities.
A new top income tax rate of of 45 per cent is set to apply from April 2013. This is a reduction from the current top rate of 50 per cent and applies to individuals with adjusted net income of more than £150,000. The dividend additional tax rate will be reduced from 42.5 per cent to 37.5 per cent and trust rates will also decrease.
If it is likely that you will pay tax at the 50 per cent tax rate in 2012-13, you may wish to consider deferring income into the following tax year or accelerating payments providing you with tax relief. For example, you could delay declaring dividend payments or maximise gift aid donations and pension contributions (within certain limits).
Giving consideration to the timing and structure of your income or expenditure could significantly reduce your tax bill.
Businesses would benefit from reviewing the timing of their expenditure, as in addition to the above reduction in the rate of income tax, the main rate of corporation tax is set to fall over the coming years.
By incurring expenses shortly before the organisation’s year end, relief may be obtained 12 months earlier and at a higher rate.
Consideration should also be given to the timing of asset disposals. The main rate of corporation tax will be reduced from 24 per cent to 23 per cent for the financial year beginning April 1 this year and is to reduce to 21 per cent from April 1 next year. In addition to this, it was announced in the Autumn Statement that a temporary increase in the annual investment allowance from £25,000 to £250,000, would apply from January 1 this year. This means that the majority of businesses can now claim a full tax deduction for expenditure on most types of plant and machinery (excluding cars) of up to £250,000 a year for a limited two-year period.
One of the most obvious strategies is to ensure you are making full use of personal allowances. The tax-free personal allowance for 2012-13 is £8,105 for those aged under 65. This increases to £10,500 for those aged 65 to 74 and £10,660 for those aged 75 or over. The higher age related allowances are scaled back if income exceeds £25,400.
If your spouse or partner has little or no income, consider transferring income (or income-producing assets) taking care to avoid falling foul of HMRC’s settlements legislation governing “income shifting”.
It may be appropriate to consider maximising use of the annual tax-free ISA allowance. This is £11,280 for adults and no more than £5,640 can be paid into a cash ISA. A 16-17-year-old can invest up to £5,640 in a cash ISA. Junior ISAs are available for those aged under 18 who do not have a child trust fund account and allow investment of up to £3,600 in 2012-13.
This article is only a brief outline of strategies which could be pursued and there are many other options available to taxpayers.
If you require further information please telephone Mairi Drummond on 01573 224391 or email mairi.drummond@renniewelch.co.uk.