Seven quick wins for the end of the financial year

Wednesday, March 24, 2010 | Posted by: Richard Jameson
Categories: Protecting your wealth | Tags: tax planning, inheritance tax, CGT, Richard Jameson, IHT, tips, bonuses, UK residency, spouse, dividends, Gift Aid, tax rates, ISA, 5 April, Capital Gains Tax

There are just a few days left before the end of the tax year but there is still time to act if you want to keep your tax bill to a minimum. No need to get bogged down in lots of paperwork – here are seven simple steps you can take…

1 Take dividends and bonus payments
Next tax year sees the introduction of the new 50% top rate of income tax (and 42.5% on dividends) for those earning £150,000 or over. So entrepreneurs and individuals who own their own company would be well minded to consider taking dividends from their companies ahead of the new tax year (the effective tax rate is over 11% less in the current tax year). Similarly, bonus payments can also avoid the new higher rates of tax if received before the new tax year.

There may also be opportunities to save tax for individuals earning between £100,000 and (approximately) £113,000, who will have their personal allowance abated next year.

Payment of dividends and bonuses to directors is a tricky area so don’t forget to check with your professional advisor first to ensure the payment really is seen as being made before the end of the tax year.

2 Use your ISA allowance
An individual is entitled to a tax-free ISA allowance each tax year. If you have not yet used this tax year’s allowance, you can shelter £3,600 from tax in a cash ISA, or £7,200 in a stocks and shares ISA.

For those over 50, the limits are £5,100 and £10,200 this tax year (before the allowances rise for everyone from 6 April 2010).

3 Reduce your capital gains tax
Use your capital gains tax annual exemption. Each year an individual can shelter gains up to the value of the exemption, currently £10,100.

4 Leaving the UK? Do it now!
More desperate tax planning: if you are leaving the UK and ceasing to be tax resident, it is better to do this at the end of a tax year, rather than at the beginning. This is in case you remain liable to UK tax for the remainder of the year. Again it’s worth checking with your professional advisor before you hop on the plane as this is another tricky area and you could find yourself still resident in the UK if you don’t plan correctly.

5 Maximise income available to your spouse or civil partner
If one spouse is a higher taxpayer and the other not, it makes sense to maximise the use of the basic rate tax band by diverting income to the lower tax payer, for example, by gifting cash and earning bank interest).

6 Consider bringing forward/postponing Gift Aid payments to charity
As relief from income tax is due, it may be possible to time a payment to charity to fit in with your circumstances if you calculate that the tax saving will be greater in this year or next.

7 Take advantage of any annual Inheritance Tax exemptions
An individual can gift £3,000 each year, which is exempt from tax. This exemption can be carried forward one year if unused in a tax year.

As with any planning it is always worth talking to a professional advisor to ensure that the steps are relevant to you.

Image: © Harald Groven, 2009

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