After the rush to complete the Tax Return and pay your dues by the end of January, most people will try to ignore their tax affairs until just before April. However, now is a good time to do some early spring cleaning to ensure everything is up to date before the new tax year starts. Some of the things that you may like to review could include:
If your year-end is approaching, by purchasing a new asset before your annual accounting date will accelerate your capital allowances into this year rather than delaying them into next. But be careful how much you spend in one go. From 1 January 2016, the Annual Investment Allowance (AIA) which gives relief at 100% on most new purchases of assets dropped from £500,000 to a permanent rate of £200,000. If your accounting year-end straddles 1 January 2016, your AIA will be restricted. For example: if your year-end is 31 March, your total AIA for the year is (£500,000×9/12 + £200,000×3/12 =) £425,000. However, the AIA available for purchases during 1 January to 31 March is only (£200,000×3/12 =) £50,000. If you exceed the AIA in this period, the excess will only attract relief at the standard writing down allowance (8 or 18% as applicable). Therefore in these circumstances, either split your purchases or delay until the new accounting year to obtain quicker relief overall.
Consider changing your year-end
Staying with the self-employed and those in partnership, if you have an accounting year-end other than 31st March or 5th April annually you may be carrying forward a level of Overlap Relief. As this is only used when either your accounting date changes or you cease trading, if your Overlap Relief is substantial and circumstances permit, you may like to consider changing your year-end to release this relief sooner rather than later. Generally, this is best considered when annual profits are falling or losses are incurred (due to complicated tax reasons) and you should make sure that you do not cause a temporary increase in liabilities in order to obtain the relief. Specialist advice should be taken.
Capital Gains Allowance
amounts to £11,100 for the current tax year. If you have not already used this allowance, you may like to consider bringing forward some sales to use this exemption where possible. With planning, you can make use of “Bed and Spouse” to crystalise profits.
Capital Gains Losses
With the recent volatility on the stock markets, a lot of investors have unrealised losses in their portfolios. You may like to consider crystalising some of those losses before the end of the tax year provided that doing so would not mean the loss sacrificed some of your annual CGT exemption. (For example, if you had an overall gain this year of £9,000, crystalising a £5,000 loss this year would not provide you with any relief as the £9,000 gain which is already covered by the CGT exemption would merely be reduced to £4,000. However, if you already had realized an overall loss of £9,000, crystalising a further loss of £5,000 this year would mean £14,000 in capital losses to carry forward against future profits)
Annual Gift Exemption
Any person may gift assets free of Inheritance Tax of up to £3,000 in any tax year (£6,000 if the 2014/15 allowance has not been used). If you are considering any Inheritance Tax planning, this is a useful relief to use. Gifts above the gift allowance value may be made, of course, but they will not fall immediately outside of your estate for Inheritance Tax purposes and may remain assessable for 7 years.
Maximise your pension relief
recent press releases imply that higher rate relief on your pension contributions may soon be a thing of the past with pension contributions to be attracting a flat rate of income tax relief of 30% from as soon as April. If the rumours are to be believed, this will be a boost to basic rate taxpayers but a loss to those currently obtaining relief at 40% or above. If you are in the group who could potentially lose from such a change, you may consider whether you can maximize your higher rate contributions before the end of the tax year – using up any unused relief from earlier years if possible to do so. Remember to do the math carefully though as the ability to move pension contributions from one tax year to another was lost some time ago so if you pay too much, you cannot claim to have it treated in an earlier year any more.
With the Budget due in March, some or all of the above reliefs may change further and as has been seen in recent years, changes can come into immediate effect. By spring cleaning your affairs sooner rather than later, you can put yourself in the best position now.
For further information on any of the above points or to discuss your tax affairs generally, please do not hesitate to contact Robin Beadle.