Tax Planning for tax year end 5 April 2015

Now may be an opportune time to consider issues for the current tax year which ends on 5 April 2015.

It would be worthwhile to look at a number of matters that you may wish to consider:

1. This is the time of year when anybody with spare cash often look to top up their ISAs or pensions.  You can personally invest a maximum of £15,000 in a cash/shares ISA each tax year.

   These can also be used for any children. We are sure they will thank you for putting the money into something they will not be able to access for some time!

2. If you would like me to ask your IFA regarding company pension advice and personal investments. (Our recommended Financial Adviser, Philip Lee of Hanson Wealth Management).
3. There is the annual exemption for Capital Gains of £11,000 which can be used if there are assets that can be sold, such as shares.
4. Each year we can all make gifts personally that are free from Inheritance Tax of £3,000. If you have not done it for the previous year then you can make gifts of up to £6,000 or the balance. There are other limits that apply in certain circumstances. However, there is always the possibility of making larger gifts IHT free. If regular gifts are being made then there is the possibility of using the gifts out of income scheme that allows appropriate amounts to be IHT free from day one. If you have somebody in this position we are able to advise you further.
5. Child benefit – If you currently receive child benefit from HMRC you may want to consider the timing of dividends even further.  As from 7 January 2013 your child benefit entitlement is reduced if either parent/guardian responsible for the child total gross annual income exceeds £50,000, disappearing altogether if either parent exceeds an annual income of £60,000.

Dividends

Dividends should always be paid out in relation to the shareholdings in your company.

In the current tax year, between £41,865 and £150,000 threshold, gross dividends are taxed @ 22.5% (works out at 25% on the net dividend you actually receive).

Above an income threshold of £150,000, gross dividends are taxed @ 27.5% (works out at 30.56% on the net dividend you actually receive).

You must leave sufficient funds in the company to make good its liabilities to VAT, tax, accountancy fees etc before taking a dividend.

Remember you pay personal income tax on salary/dividends etc based on your personal income for a given tax year (e.g. 6th April to 5th April) as opposed to receipts in the company’s financial year.

Also note that if your tax due is above £1,000 or less than 80% of tax is deducted at source for the tax year ending 5/4/15 then you will need to make payments on account in addition to the liability calculated.

This will mean that you will need to pay half of your tax due for the ye 5/4/15 again by 31/1/16 and then another half by 31/7/16 towards the tax due for tax year ending 5/4/16.  These payments will then be taken into account when we come to calculate your 5/4/16 tax bill.

 You can also consider shifting investments to your spouse if they are earning less than £100,000 to use their lower rate tax band (40% if higher rate) instead of your potential 60% rate.