Implementing some key tax-saving strategies ahead of the end of the tax year could help to ensure that your business and personal finances remain tax-efficient. Below we outline some tax planning tips and strategies to consider before 5 April.
Make full use of your ISA allowance
ISAs can offer a useful tax-free way to save, whether this is for your children's future, a first home or another purpose. Individuals may invest in a combination of cash or stocks and shares, up to a limit of £15,240 for the 2016/17 tax year.
The new Innovative Finance ISA is designed to encourage peer-to-peer lending. Interest and gains, along with loan repayments, will be eligible to be held in an Innovative Finance ISA and will not be subject to tax.
Meanwhile, those looking to save for the purpose of purchasing a first home may wish to make use of a Help to Buy ISA. Savings of up to £12,000 attract a 25% bonus from the government (which is capped at a maximum of £3,000). If you are considering this type of ISA, please ask us for details - various rules apply.
A saver may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA and one Innovative Finance ISA per year. Savers have until 5 April 2017 to make their 2016/17 ISA investment.
Take advantage of capital allowances
By making the most of capital allowances, businesses may be able to write off the costs of capital assets against taxable profits.
From 1 January 2016, the Annual Investment Allowance (AIA) has been set at a permanent rate of £200,000. This means that up to £200,000 of the year's investment in plant and machinery (excluding cars) is allowed at 100%. Businesses of any size and most business structures can make use of the AIA. However, there are provisions to prevent multiple claims.
You may also wish to consider 'greener' investments. 100% allowances are available for some investments, including on energy-saving equipment and low CO2 emissions cars with emissions of up to 75 g/km.
Build a tax-efficient retirement plan
Effective retirement planning can play a crucial role in your tax-efficient planning strategy, but in our experience many individuals do not take full advantage of tax reliefs and (tax-deductible) employer contributions during their working lives. This is despite the fact that personal contributions to pension schemes may attract tax relief of up to 60%.
Pension contributions must be paid on or before 5 April 2017 for them to be applied against 2016/17 income. Annual contributions limited to the greater of £3,600 (gross) or the amount of your UK relevant earnings may be eligible for tax relief. However, these will be subject to the annual allowance, which is generally £40,000.
An annual allowance taper was introduced in April 2016, applying to those with net income over £110,000 and adjusted annual income (their income, plus both their own and their employer's pension contributions) over £150,000. For every £2 of adjusted income over this figure, a person's annual allowance is reduced by £1 (down to a minimum of £10,000).
Utilise allowances across the family
Individuals are entitled to a tax-free personal allowance (PA), which is set at £11,000 for 2016/17. For couples where one person has little or no income, you may wish to consider transferring income (or income-producing assets) to them, to make full use of their PA. However, care should be taken to avoid falling foul of the settlements legislation, and you should consider the legal consequences of transfers.
Some married couples and civil partners may also be eligible for the Marriage Allowance, which allows individuals to transfer 10% of their PA to their spouse or civil partner where neither pays tax at the higher or additional rate.
This is only a selection of options that you may wish to consider as part of your tax planning strategy. For more information, and for advice on how we can help you to minimise your tax bill, please contact us.