Year end tax planning…

With little more than five weeks to go until the tax year end, now is the time to think about what you can do to reduce your tax bill.  There are lots of possibilities and you should talk to your Barnes Roffe LLP Partner for a full review but here are a few simple ideas to get you thinking!

Reduce your income!  OK, that’s not the first thing you’d think of but for some it’s particularly relevant. Investing in a pension is tax efficient for everyone but if you’re earning between £100,000 and £112,950 it is particularly so.  It is at those levels of income that your personal tax allowance is withdrawn, so you are effectively taxed at 60% on that band.  So someone on £110,000 will only take home £3,900 of that last £10,000 after tax and NIC. Putting that £10,000 into a pension means no tax to pay on it and your investment is worth 250% more instantly!

Give gifts! The taxman allows you to give an annual gift of £3,000 which will fall out of your estate for IHT purposes and you can carry forward one year’s allowance so you may be able to give £6,000 if you gave nothing last year.  Small gifts of up to £250 to different individuals may also be given as may gifts out of what the taxman calls ‘surplus income’ (although this latter point is a complicated area, so take advice).

Talk to your spouse! Now, you should always be doing that but at the end of the tax year, consider transferring assets or income so that you make the best use of both of your personal allowances, tax bands and CGT allowance.

Talking of CGT, if you have a gain which might lead to a tax charge and another asset sat at a loss, consider selling the latter to realise your loss.  Particularly relevant if you dabble in the stock market where selling is relatively straight-forward (and you can always buy the same shares back later, provided you wait at least 31 days).

Buy back some state pension.  Not strictly a year-end thing but something worth looking into.  You need 30 years of NI contributions to qualify for a full state pension but if you have less, you can ‘buy’ additional years with a full year’s Class 3 NIC contribution of (currently) £626.30.  Is it worth it?  Well, each year’s worth of pension contributions is worth £169 a year in pension.  That may not sound much but currently you would need to buy an annuity of around £4,700 (for a man) to get a pension of £169 a year.  So that’s £4,700 worth of annuity for just £626.30.  A bargain.

I’ve just scratched the surface here really but hopefully given you something to think about.  If you’d like more advice, please get in touch.