Do you need to consider the following planning points before 5 April?
- Married couples and civil partners may better utilise personal allowances, lower rates of tax and annual capital gains tax (CGT) exemptions by re-allocating investments between them.
- Such an “equalisation” of investments between spouses/civil partners could be of even greater benefit with effect from 6 April 2016, with the introduction of both a savings allowance and a dividend allowance. For example, someone with a reasonably significant amount of dividend income may like to consider the transfer of equities to their spouse/civil partner, in order to better utilise the £5,000 dividend allowance available to each of them.
- On the subject of the new rules for the taxation of dividends, those who are likely to be adversely affected could consider, if possible, accelerating the payment of dividends to a date prior to 6 April 2016. Conversely, those who will pay less tax under the new rules may consider the deferral of dividends until after that date.
- Any element of the annual CGT exemption (£11,100 for 2015/16) not used is lost, and therefore it might be appropriate to crystallise further gains before 6 April.
- Following on from the above, if significant gains have been realised in 2015/16, it may be that assets sitting at a loss could be sold, or a “negligible value” claim made, prior to 6 April to mitigate CGT.
- Investments in tax-efficient vehicles such as ISAs should be contemplated and annual investment limits, which apply per individual, fully utilised.
- Investments might also be made in Enterprise Investment Scheme (EIS) companies or Venture Capital Trusts by 5 April 2016, to take advantage of 30% income tax relief, as well as CGT deferral for EIS investments. Qualifying investments into smaller Seed Enterprise Investment Scheme (SEIS) companies currently qualify for 50% income tax relief, and 50% CGT exemption for reinvested gains.
- Careful consideration might be given to further investment into pension schemes, being mindful of the rules applying to restrict tax relief in some circumstances. This point is particularly pertinent at the moment, given the further restrictions being introduced from 6 April 2016, and the strong possibility of more to be announced in the Budget on 16 March.
- Alternative tax deferral opportunities that exist with investment bonds/wrappers might be appropriate. Any gain accruing over the life of the bond is normally chargeable to income tax at the end of its term, and annual tax free withdrawals of 5% of the original capital sum may be made.
- Turning to inheritance tax, although most gifts will not normally give rise to an immediate charge to tax, annual reliefs which exempt gifts from IHT are available and should be explored.
- A review of existing trust structures to determine if the original benefits are still being achieved, may be beneficial, particularly in view of the 45% income tax rate in operation. This applies without the benefit of the lower rate bands (below £150,000) applicable to individuals.
- PAYE coding notices for 2016/17 are being issued and are worth reviewing, to ensure that they are correct, and amendments are made if HMRC’s estimated figures are unreasonable, or circumstances have changed.
- Car fuel benefit charge may be avoided if an employee fully reimburses the employer for all private fuel before the end of the tax year, but a careful calculation would need to be undertaken to measure any potential saving.
- Individuals claiming to be not resident in the UK need to carefully monitor the number of days spent here. If a day count is undertaken now, it might be possible to take action before the year end to protect non-resident status.
- For individuals thinking of leaving the UK to live abroad, ensuring that departure is before 6 April 2016 might provide an extra year of non-UK residence. However, the rules relating to tax residence have been the subject of considerable change over recent years, and detailed advice should be taken before emigration is contemplated.
- For those UK resident but not domiciled in the UK, there may be merit in reviewing amounts remitted here in advance of 5 April 2016. It could be possible to make further remittances, or to take action to reduce additional liabilities. Such individuals could also consider remitting otherwise taxable amounts to the UK to invest in certain qualifying companies.
This list is, of course, far from exhaustive and each point has by necessity been kept brief, but hopefully provides a flavour of the topic. As always, the general health warning applies that potential tax-saving steps should never be undertaken without full consideration of the commercial position.
Please contact us at firstname.lastname@example.org, or through your usual Saffron contact, if you would like to discuss any of these issues further.