It is time to turn our attention to maximising the efficiency of your tax affairs in the lead up to 5 April 2014. Below are a just a few ideas on how the right
The following table summarises the main tax allowances available, in most cases they are wasted if they are not used before the end of the tax year:
|Type of relief||Allowance 2013/14||Relief|
Up to £200,000
20% to 60%
Tax Free Growth
Tax Free Gains
|Venture Capital Trusts|
|Enterprise Investment Scheme|
|Seed Enterprise Investment Scheme|
50% to 78%
These classic staples of year end
First we focus on changes to pensions and milestones to be aware of if you are a non-domciled tax payer.
Another round of changes to the tax treatment of pension contributions presents two main issues pre-6 April:
Reduction in Annual Pension Allowance
The pension annual allowance will reduce from £50,000 to £40,000 from 6 April 2014.
Pension contributions in 2013/14 utilise the current year allowance first, before being carried back to 2010- 11, then 2011-12 and finally 2012-13. Any unused allowances from the tax years 2011-12 to 2013-14 will be available for carry forward to 2014-15 and subsequent years, still based on the £50,000 limit.
For those who pay tax at the UK’s highest rate of tax, the cost of contributing £50,000 to your pension fund can be as low as £27,500 after tax relief.
For an individual with income of between £100,000 and £118,880 the tax reliefs are even more generous; for every £2 paid into a pension, £1 of UK personal allowance is reinstated. This results in you potentially receiving 60% additional tax relief on pension contributions.
“Fixed Protection 2014”
From 6 April 2014 the standard lifetime allowance for UK pensions will be reduced from £1.5m to £1.25m. This can be very significant, as a penal 55% tax rate can apply to the value in an individual’s plan(s) in excess of £1.25m.
Fixed Protection 2014 offers the chance to “fix” your lifetime allowance at £1.5m but an application prior to 6 April 2014 is needed, and (broadly) you will not be able to make any further contributions to defined contribution plan and/or accrue any (significant) further benefits in a defined benefit scheme.
Inevitably, there is some further detail to work through, but individuals with significant existing value in UK pension plans would be well advised to review their position before 6 April and to consider applying for Fixed Protection 2014 where relevant.
If you are a non-domiciled taxpayer living in the UK, certain tax residency milestones can impact your tax status.
- For those who have been resident in the UK for some part of at least 7 out of the last 9 tax years an annual charge will apply to claim the remittance basis in future years.
- This charge is currently set at £30,000, rising to £50,000 if you have been UK tax resident in some part of at least 12 of the previous 14 tax years.
- For longer term residents, you become “deemed domiciled” in the UK for inheritance tax purposes once you have been here for some part of at least 17 out of the last 20 tax years. This brings your worldwide estate into the UK inheritance tax net.
There may be planning opportunities particularly for those approaching or affected by the above watersheds, and we would be pleased to provide you with more detailed advice to help mitigate your UK tax exposure as appropriate.
The following opportunities should always be considered toward the end of each tax year but are often overshadowed by “headline” changes in legislation. Nevertheless, these are key planning points that should not be disregarded when looking at your year-end tax position and in order to utilise the allowances available:
Tax Efficient Investments
- Enterprise Investment Schemes (EIS)
Key benefits: 30% income tax reducer, capital gain tax exemption after 3 years, inheritance tax exemptions, capital gains tax deferral, carry back from 2013/14 to 2012/13.
- Seed Enterprise Investment Schemes (EIS)
Key benefits: 50% income tax reducer, capital gain tax exemption after 3 years, inheritance tax exemptions, capital gains tax exemption for proceeds reinvested of up to 100% of the gain, carry back as for EIS.
- Venture Capital Trusts (VCT)
Key benefits: 30% income tax reducer (if you are a subscriber and hold the shares for ≥5 years), capital gain tax exemption, tax-free dividends.
- Individual Savings Accounts (ISA)
Key benefits: Tax free growth and no capital gains tax on exit, can be a cash ISA or Stocks & Shares.
Capital Gains Tax (CGT)
If you have assets which have increased in value you could make use of your Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... annual exemption and uplift base costs. Rebasing could be achieved with shareholdings through ‘Bed and Spouse’ and ‘Bed and SIPP’, ‘Bed & ISA’ transactions. Please contact us for more information on these planning techniques.
Utilise Your Spouses Tax Free Allowances, Exemptions & Lower Tax Bands
You and your spouse/civil partner are entitled to the same tax free allowances and exemptions. You should consider if it is appropriate to transfer assets or hold them in joint names in order to reduce your tax liability next year.
Timing of Dividend Payments
If you are a company Director/shareholder and can control or influence the timing of dividend and/or bonus payments then this should be reviewed before 5 April for any potential tax benefit.
Inheritance Tax (IHT)
Key benefits: Ensure you don’t waste your annual allowance of £3,000 and consider utilising the exemption for ‘gifts out of income’, which is often overlooked.
If you would like further advice in respect of any of the matters discussed here please do not hesitate to contact us.
The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT). We are not Financial Advisors and are not regulated by the Financial Conduct Authority (FCA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to an IFA who can take care of the FCA aspects of any advice you require. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.