As we approach the end of the tax year then there are opportunities available to minimise your tax liability. Here are five relatively easy ones.
1. Avoid or Reduce the High Income Child Benefit Charge
This is a clawback of any child benefit received when the higher paid partner in a relationship has adjusted income (“ADI”) in excess of £50,000. The child benefit received is clawed back by 1% of the benefit received for every £100 of ADI above £50,000.
There may be opportunities to reduce this charge. For instance, a couple could ensure that any investment income, such as dividends or bank interest, are received by the lower earning partner by transferring the shares or interest-bearing account into their name.
Also, ADI in income after deducting giftaid donations and pension contributions. Therefore, if the higher earning partner has income of £54,000 then the High Income Child Benefit Charge could be avoided by making a gross pension contribution of £4,000.
2. Make Full Use of Your Capital Allowances
If you are in business, either as a sole trader or a partner in a partnership, then you can claim “AIA” and currently offset 100% of up to £500,000 of expenditure on capital equipment against taxable profits in the year that you incur the expenditure. Unless the government announce further amendments to this then the AIA will fall to £50,000 on 1st January 2016. If a loss is created then this can be offset backwards and tax paid in earlier years reclaimed or offset sidewards and offset against any other taxable income received.
AIA can be claimed against integral fixtures in a building, which normally only attract relief at 8%.
3. Make Use of Your Annual Capital Gains Exemption
If you are holding assets such as shares that have increased in value, and you intend to sell them in the near future, then if you have not made any other Capital Gains in the current tax year then disposing of them before 5th April will ensure that you make use of some or all of your £11,000 CGT exemption. You should remember that this exemption applies to your gain and not to your proceeds of sale.
Similarly, if you have made gains in excess of £11,000 and are sitting on assets which have lost value then selling these assets before 5th April will mean that you can offset the loss against your taxable gains.
4. Consider Making Pension Contributions
Everyone can make gross pension contributions of up to £3,600 in any tax year and receive basic rate tax relief on the contributions. Individuals with earnings above this amount can make gross contributions up to the value of their earnings, subject to an annual limit which currently stands at £40,000.
Tax relief is currently available at an individuals marginal rate. Therefore, someone with a taxable income of £80,000 could save £16,000 tax at a net cost of £32,000. However, there are instances when tax relief could be even more valuable. For instance, individuals with gross income above £100,000 have their personal allowances withdrawn by £1 for every £2 by which earnings exceed £100,000. However, earnings are calculated after deducting pension contributions, so someone earning £110,000 can effectively get tax relief in excess of 60% on gross contributions up to £10,000. We have already mentioned reducing High Income Child Benefit Charge.
Please note that pension tax relief is being looked at by all political parties so you may wish to make any contributions before the budget.
5. Top Up Your ISA
You should consider ensuring that you have put the maximum annual amount, currently £15,000, into the shelter of an ISA. You can now put the whole amount into a cash ISA rather than investing in shares.