Time to focus on year end tax planning

As the end of the tax year approaches on Saturday 5 April 2014, now is the time to give some thought to year-end tax planning opportunities.

Personal allowances
The basic personal allowance for 2013/14 is £9,440. If it is not used before the end of the tax year it will be lost. To prevent this from happening, you could consider:

• Bringing forward some income to 2013/14 to mop up the unused allowance. For example, if you own a company, you might pay yourself (or whoever has not used their personal allowance) a dividend or a bonus before the end of the tax year.
• Transferring income-producing assets to a spouse or civil partner with little or no income. For example, you could arrange to transfer cash deposits or other investments to them.

The personal allowance is reduced by £1 for every £2 by which income exceeds £100,000. It may be possible to avoid losing the personal allowance by reducing your income below £100,000. You might be able to achieve this by making pension contributions, deferring some income until after 5 April 2014, making charitable donations or transferring income-producing assets to your spouse or civil partner. This strategy will save tax at an effective marginal rate of 60% (48.75% for dividends) for income between £100,000 and £118,880.

Pension contributions
You benefit from full tax relief on contributions to registered pension schemes, and this can help to make them very tax-efficient investments. The tax relief is capped at the higher of £3,600 and 100% of your earnings, although this is subject to the annual allowance, which is set at £50,000 for 2013/14 but will reduce to £40,000 from 2014/15. The annual allowance can be carried forward for three years, after which time it is lost.

Tax-efficient savings
You should consider investing in an individual savings account (ISA) by 5 April 2014. The ISA allowance for 2013/14 is £11,520, of which £5,760 can be in cash.

Capital gains planning (CGT)
Each individual can realise capital gains of up to £10,900 in the current tax year free of CGT. Married couples and civil partners can therefore realise gains of up to £21,800 tax-free in 2013/14.

Take advice
Please do not leave taking year-end tax-planning advice until the last minute, when it might well be too late to take action.

Let us know if you need to discuss any of the issues raised here.

In this edition

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 10 January 2014.