Get started on your year-end tax planning Thursday, 1st April 2010
There’s still time to get ready for the tax year-end and all the changes that will be coming into effect from 6 April 2010. If you weren’t already aware, the top rate of income tax is set to increase to 50% for anyone with total income of more than £150,000, and in addition to this, there are the restrictions on higher rate tax relief for pension contributions for high earners.
In order to help you with your planning, find below a summary of some of the key issues to consider ahead of this tax year-end.
Accelerate income and defer expenditure
If possible, income could be accelerated to the current tax year and expenditure deferred. However, HMRC has noted that anti-avoidance provisions may be introduced to prevent such planning.
Dividends
It is also worth looking at accelerating payments of dividends before the increase in dividend tax to 42.5% takes effect in April 2010.
Bonuses
Consider accelerating bonuses to avoid paying additional income tax. Where a company has profits of £100 available from which to pay as a bonus, the net amount received by an individual taxed at the top rate of 40% is currently £52 and, post-April 2010 with a top rate of 50%, this will be reduced to £43.
Pension contributions
As always, take advise in order to maximise the tax relief attributable to pension contributions.
Use the current low CGT rate
In view of the large discrepancy between income tax and CGT, and to use the CGT annual exemption, investors may wish to invest for capital growth. Consideration should also be given to any potential future increase in CGT rates.
Reduce payments on account
If income levels are fluctuating and payments on account are required, it may be appropriate to reduce the payments (but consider interest charges, which will rise on any underpayment).
Investment losses
Consider loss claims for any investments that may now be of negligible value. In some instances the loss can be offset against income, which provides greater tax relief.
Charitable donations
Charitable donations should be made by the spouse with the higher income level in order to benefit from higher-rate tax relief under the gift aid scheme. Otherwise, very low income taxpayers may incur a tax charge.
Giving investments, such as stocks and shares to charity, may also be more tax-efficient.
Property relief
If individuals own more than one property they may be eligible to make a principal private residence (PPR) election to maximise PPR relief.
Review borrowing structure
Anyone with tax-efficient borrowing opportunities, such as those working in a partnership or those with investment properties, may wish to review their borrowing structure to ensure maximum tax efficiency.
Inheritance tax planning
Those planning for IHT should make full use of annual exemptions such as the £3,000 annual allowance and regular gifts out of income if considering lifetime gifts. Consider IHT reliefs such as agricultural or business property relief, and the nil rate band.
Review wills and life assurance policies
Now is also a good time to review wills and life assurance policies - ensure that the latter are written into trust.
Furnished holiday lettings
The tax breaks applicable to UK furnished holiday lettings have been widened to cover those in the EEA, but they are to be scrapped from 6 April 2010. People should consider whether there is any scope to claim tax relief under the revised rules now.
Gains from offshore funds
Look at the realisation of any gains arising in respect of non-distributor offshore funds, e.g. hedge funds, which are subject to income tax rather than CGT, to ensure lower rates of income tax apply.
