TOP TEN TAX PLANNING IDEAS FOR THE TAX YEAR 2014/15
We are all well aware that 2015 is an election year, and if there is a change in government, that could well mean two budgets in 2015 with potential significant tax changes. Therefore, as we approach the last official budget of the current government it is well worth reviewing your tax situation to see if there are any tax planning and tax saving ideas that you may be able to take advantage of that will help you save money. We list below the Whittingtons top tax tips that are relevant to many of our clients and potential clients. With all the current controversy over aggressive tax avoidance, there are still opportunities to save tax – and we could all do with a break.
Income tax thresholds
Most people if asked would state that the current top rate of income tax is 45%. In fact anyone earning between £100,000 and £120,000 in 2014/15 will pay tax at a rate of 60% (62% if you include national insurance). Those who have children and earn between £50,000 and £60,000 will also suffer higher effective rates of tax due to the progressive clawback of child benefit. There are some simple measures that can help you reduce your taxable income so that you are not caught by the higher rates, such as making additional pension contributions, where possible deferring income to the following tax year, or transferring income-earning assets to your spouse.
This is still one of the great tax breaks provided by the government, and if you can afford to make contributions into a pension scheme you should consider this. In 2014/15 you are able to contribute up to £40,000 annually (this amount includes contributions from all sources including employers’ contributions). In addition, you could go back and use up any unused allowances from the 3 preceding years, i.e. up to an additional £190,000. Pensions have recently been made more attractive to the greater flexibility introduced to the way you can draw down your pensions once you have reached age 55. Pension contributions are even more effective if made by the employer as you then also save on NIC. A lesser known tax break is that you can contribute up to £2,880 net (grossed up to £3,600) into a stakeholder pension for your family members (including children) who may not have any income of their own.
ISAs, NISAs and JISAs
As of 1st July 2014, New Individual Savings Accounts (NISAs) were introduced to replace the ISAs. The main advantage of a NISA is that you can invest up to £15,000 each year – in either stocks and shares or cash. In addition, you can invest up to £4,000 into a Junior ISA (JISA) for your children (or relatives/friends children).
Other tax efficient investments
You can get up to 30% tax relief if you invest in a company’s shares through the Enterprise Investment Scheme, or invest in a Venture Capital Trust. If you are prepared to take more of a risk and invest in start-ups or similar through the Seed Enterprise Investment Scheme then you get up to 50% income tax relief. There are also further advantages such as the gains on these investments may be partially or totally free of capital gains tax. There are, however, many conditions associated with these investments so please consult us if you are considering this option.
Capital Gains tax Allowances
Everyone currently has a capital gains tax allowance of £11,000. You should review any capital gains you have to ensure you maximise this. For instance, if you have already used up your personal allowance for the year you should consider deferring the sale of an asset that has a gain until the next tax year. Alternatively you may wish to bring forward the sale of an asset that has a loss. You would of course want to consider any likely gains/losses you expect in the coming year. In the longer term, you may wish to consider the transfer of assets to your spouse so that you can effectively double up the personal allowance.
Businesses – purchase of capital items
The government increased to £500,000 per annum the amount that attracts the annual investment allowance for capital purchases, although this is due to end on 31st December 2015. However this can be affected by the timing of your business’s year end, so please review the timing of any planned purchases of plant and equipment or lorries.
The government has a tendency to tax company cars very highly on the individual. The tax rates on company cars are due to rise over the coming years, and significantly in 2018. Our general advice is to avoid company cars and that most individuals would be better off purchasing a car privately and charging business mileage at the appropriate rate. There are some exceptions to this general rule, for instance if you are considering the purchase of an electric car or a very low carbon emission vehicle.
If you are paid through your company, you should review your dividend strategy to ensure you have a tax-efficient mix of salary and dividends. If Whittingtons prepare your accounts and also look after your personal tax affairs then we would do this as a matter of course. However, do let us know if your circumstances have changed or you anticipate changes as this can affect the efficiency of the tax planning; for example, if you plan to take a larger than normal dividend to finance the purchase of a property. Getting the dividend strategy right can save very significant sums.
If you have young children and you are an employee, your company can purchase childcare vouchers for you. Employees who pay tax at the basic rate of 20% can receive up to £55 per week in childcare vouchers, whereas higher rate/additional rate tax employees can receive up to £28 or £25 per week respectively. The childcare vouchers can be spent on approved nurseries or other approved childcare providers. Childcare vouchers are tax deductible for the employer, and are not taxed as a benefit-in-kind on the employee.
Inheritance Tax (IHT) Planning
Most of us avoid Inheritance tax planning like the plague, however anyone with a property (particularly in the South-East) and a few other capital assets can easily fall into the realms of Inheritance Tax. This is a whole area in itself, and there are many aspects to this so please consult us or any specialist regarding Inheritance Tax planning. However, for those who are likely to be affected by this there are also some other simple considerations. For instance, remember to use up your (and your spouse’s) annual total gift allowance of up to £3,000 (you can also use up the previous years if unused). You and your spouse can also give IHT-free gifts where your children or grandchildren are getting married (£5,000 and £2,500 respectively). One last point on Inheritance Tax is that if you choose to leave 10% or more of your estate to charity, then you can reduce the rate of Inheritance Tax that will be applied to your estate from 40% to 36%.
Whittingtons, Chartered Accountants
Whittingtons are a Guildford-based firm of Chartered Accountants and we would be happy to talk to you regarding any of the above, or other tax saving ideas. Please contact Martin Joseph on 01483 456363.
Please note that all comments above are for general use only and are based on current legislation and tax law as at February 2015. If you think any of the above are relevant to you, then please seek additional professional advice