Seven Year End Tax Planning Thoughts
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- Lido Tax Consulting
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Below are several thoughts on tax some but not all related to the tax year end on 5 April 2012.
These comments are by their nature general and any action needs to take into account the wider commercial or family context. This is not investment advice. Please contact me for specific advice relating to your circumstances.
1. Use your Pension limits
Under the new rules from 6 April 2011 the maximum gross contribution per year is £50,000. There is a possibility however to mop up unused relief from the years 2008/09 to 2010/11 provided at least some other contributions were paid in those years.
The pension lifetime allowance reduces on 6 April 2012 from £1.8 million to £1.5 million. It is possible to elect by the end of year to retain the higher limit but this will block further contributions so this needs to reviewed carefully.
2. Accelerate Capital Expenditure in your business before 1 April 2012 for Companies and 6 April 2012 for sole traders / partnerships
The Annual Investment Allowance giving tax relief for 100% of capital expenditure for small businesses reduces from £100,000 to £25,000 in the new year. Consider therefore advancing fixed assets expenditure. It is often overlooked that the relevant date for qualifying expenditure is when the contractual obligation to pay arises rather than when the cash actually moves. Given the change it can often be beneficial to consider changing your business year-end to 31 March 2012.
3. Watch the High Marginal Rates of Tax
The withdrawal of the personal allowance for those with earnings above £100,000 has caught many individuals with lumpy income unaware. The personal allowance of £7,475 for 2011/12 tapers away at a rate of one pound for every extra two pound of income above the limit. If you have any control with your employer when a bonus is paid consider the possible marginal tax rate of up to 60% if your income is in the band between £100,000 to £114,950. Maybe ensure that all charitable contributions by the family are paid by the spouse who is a higher rate taxpayer. Could you consider executing a trust to allocate the income but not the capital to one or other spouse? Pension or gift aid contributions in the marginal rate above are of course very efficient.
4. Use your Inheritance Tax limits
The exemptions available for Inheritance Tax each year are lost if they are not used. The annual exemption is £3,000 and can only be carried forward for one year only. If you have regular income surplus to your annual spending requirements consider documenting and making annual gifts of a regular amount of income.
5. New Generous Tax Relief for investment in new Small Trading Businesses - Seed Enterprise Investment Scheme (SEIS)
The new enhanced EIS scheme starts from 6 April 2012.
- Tax relief of 50% of the amount invested - regardless of the marginal rate of tax at which the individual is taxed.
- Maximum of £100,000 investment per tax year per individual
- Exemption from capital gains tax on sale of the shares.
- Deferral of capital gains tax on any investments rolled over into SEIS shares meaning possible tax relief of up to 78% for 2012/13
- Limit of £150,000 funds a company can raise under the scheme
- Investee company must have been trading less than two years and have net assets less than £200,000
- Maximum shareholding in each company per investor - 30%
There is clear substantial investment risk for these ventures but as part of a diverse portfolio.
6. Invest efficiently in a Business Property Renovation Allowance (BPRA) partnership with monies you would otherwise have paid in tax
Consider investing in a BPRA limited liability partnership in a hotel or a car park with a pre-arranged tenant.
Invest £100 - financed by cash down of £37 and a limited recourse loan organised by the partnership of £63. The total investment of £100 qualifies for one hundred percent capital allowances.
The deposit is thus covered by the tax refund when your tax return is submitted after 05 April 2012.
Minimum gross investment normally of £100,000.
7. Buy yourself a new smart phone on a company contract - tax exempt under new HMRC guidance
If a limited company provides an employee with a mobile phone on a business contract any private use has been exempt from income tax and national insurance for some time. HMRC have however recently changed their view and accepted that smart phones such as iPhones, Blackberries and android phones also now qualify for the exemption. This is clearly as the primary purpose of such devices is making phone calls rather than as a handheld computer. If tax or national insurance has been paid in the past on this incorrect basis it is possible now to make a back claim for a refund.
Please do get in touch if you want more detail or have any questions how this might apply to you.