It's never too late to start planning!

The end of the 2015-16 tax year is rapidly approaching so take some time to review this general guide that looks at matters that may be relevant to you and your business – it could save you time and money in the future.

The end of the 2015-16 tax year is rapidly approaching so take some time to review this general guide that looks at matters that may be relevant to you and your business – it could save you time and money in the future.

Income tax

  • Personal income over £150,000 is taxed at 45%. However, as your personal allowance is phased out where your income is between £100,000 and £120,000, this can result in an effective tax rate of 60%.
  • If a spouse or civil partner does not have sufficient income to utilise their personal allowance (£10,600 for 2015/16) or their basic/higher rate tax bands, the higher earning spouse or civil partner may gift income-producing assets to them.
  • Consider whether to make a Joint Property Election where spouses or civil partners wish to vary their beneficial entitlement to jointly owned assets and income to something other than 50:50.
    • Transfer property before rental quarter or due dates.
    • Watch the time limits: HMRC must be notified within 60 days of any changes in beneficial ownership of property.
    • Ensure that the Land Registry is informed if joint tenancies in land or property are severed when changes are made in beneficial ownership. Ensure the necessary changes are made to wills.
  • Donations under Gift Aid and Pension contributions extend the basic rate tax band and attract tax relief at higher rates.
  • Use your annual ISA limit for 2015/16 which is £15,240 and can be split however you choose between cash and permitted investments, such as stocks and shares.

Dividends

  • The rate of tax on taxable dividend income (i.e. from shares not held in an ISA or pension fund) will rise from 6 April 2016 and the notional 10% tax credit is abolished. However, there will also be a new £5,000 nil rate band on dividend income so the exact rate of tax anyone pays on their dividend income will depend on the amount they receive and their other income in 2016/17.
  • Make the most of tax free basic rate dividends before the new regime is introduced. If needed, create new share classes and vote dividends to new family shareholders.

Tax changes on residential property held by individuals

  • If you are planning to expand your buy-to-let portfolio, purchasing a new property by 31 March 2016 will save on stamp duty land tax, as a 3% surcharge will be levied on purchases of properties that are not your main residence from 1 April 2016 onwards.
  • Don’t forget to claim the 10% wear and tear allowance in 2015/16 (the property must be furnished). From 2016/17 onwards landlords can only claim the actual amounts spent on replacing furnishings during the year – so do try and defer any replacements until 6 April to get 100% tax relief on new purchases!
  • If your let property has significant equity, consider increasing your borrowing against the property. Until 6 April 2017, relief is given by deducting the interest from the letting profit – giving effective tax relief at the owner’s top rate of tax. From 2017/18 onwards, this relief will be cut back and from April 2020 relief on the interest will be limited to the basic rate of tax. Investing the capital released into an asset that produces a tax free return or a capital only return, could increase the net return from both assets over a period of years.

Pensions

  • Ensure contributions leave the bank account within the tax year in order to claim relief.
  • The maximum pension contribution for a UK resident non-earner is £2,880 net (grossed up to £3,600). Therefore, consider contributing to a pension for a non-working spouse/civil partner or children to benefit from additional tax relief.
  • If you are considering making pensions savings in excess of £40,000 you will need to work out your contributions in terms of your deemed Annual Allowances for the last three years in order to work out the maximum relief available to you.
  • Pension Input Periods have aligned during 2015/16 offering a one-off chance for individuals to double their annual contribution allowance. From April 2016 the lifetime allowance is reduced to £1million; you can also opt to protect your lifetime allowance. The annual allowance will also be tapered for individuals with income in excess of £150,000, reducing to a minimum of £10,000.

Capital gains

  • Consider the use of gifts by 5 April 2016 to use up your annual exemption of £11,100. If you do not use the annual exemption it cannot be carried forward and is lost. Consider realising capital gains so it is fully utilised.
  • Gift assets to your spouse or civil partner so that they are able to utilise their CGT annual exemption.
  • Where you expect to realise a significant capital gain, consider delaying the disposal until after 5 April 2016 - this will defer the date by which the tax is due by 12 months.
  • Entrepreneurs' Relief and the associated disposals rules: don't forget "just and reasonable" restrictions will apply when there has been mixed use of an asset.

Sheltering capital gains and income tax relief

  • Venture Capital Trust (VCT) relief is available at 30% on a VCT investment up to £200,000. In addition, VCT dividends are tax free and the investment can be cashed in tax free after 5 years.
  • Investment in an Enterprise Investment Scheme (EIS) company provides income tax relief at 30%.
  • Investment in a Seed Enterprise Investment Scheme (SEIS) company can be up to £100,000 per year and provides income tax relief at 50% of the cost of the shares.

Planning for foreign domicilaries

  • Have any accidental remittances been made (to the UK) of income or gains within the last 45 days?
  • If you are UK resident but not UK domicile, consider whether it is worth being taxed on the remittance basis. Remittance basis does lead to the loss of personal allowances but avoids a hefty annual charge; £30,000 for those resident 7 years or more, £60,000 for 12 years or more and £90,000 for those resident at least 17 years.
  • Consider setting up a UK company and using Business Investment Relief as a means of sheltering unlimited remittances from UK taxes.
  • CGT has been extended to non-residents owning UK residential property with effect from 6th April 2015.
  • If you have been outside the UK for some time and are classed as a non-UK resident, keep an eye on your visits to the UK. The statutory residency test means you can be resident if you have visited the UK for as little as 16 days depending on other factors.
  • If you consider your permanent home to be elsewhere but live in the UK i.e. you are a non-domiciled individual, UK rules currently ask you to pay tax on your offshore income when you remit it to the UK. From April 2017, permanent non-dom status will be abolished. Anyone who has been in the UK for 15 out of the past 20 years will be considered UK domiciled for tax purposes.

Capital allowances

  • Watch out for timings of expenditure and, for unincorporated businesses, the effect of the cap on unlimited income tax reliefs.
  • Note that the Annual Investment Allowance reduced to £200,000 on 1 January 2016.

Inheritance tax planning

  • Each individual can make gifts of up to £3,000 in total each year without any IHT implications. If the £3,000 exemption was unused in the previous tax year, the exemption can be carried forward so the maximum available exemption can be up to £6,000.
  • Use up the £250 allowance for small gifts to individuals.
  • Make a gift now and in seven years it falls out of the IHT charge.
  • Is it time to start making regular gifts out of income for IHT purposes? If so, document the gifts in writing.
  • If you are a non-dom you should consider establishing an excluded property trust before you become ‘deemed domiciled’ to shelter assets from IHT.

Planning ahead for 2016/17

  • If it is possible to be flexible, consider a salary sacrifice arrangement for the 2016/17 year in order to avoid marginal rate tax and consider taking tax free benefits or share based incentives rather than cash bonuses.
  • Dividend – new rules from 2016/17:
    1. Consider incorporating existing businesses to create family companies and utilise the new £5,000 allowance.
    2. Consider making adult children shareholders.

Planning ahead for 2017/18: property investors

  • Incorporation of a property rental business or buy to let may be attractive for higher rate tax payers given:
    1. New dividend allowance
    2. The decreasing corporation tax rate in 2017 and 2020
    3. The restriction of relief on financing costs from 6 April 2017

For more information, contact:

Kiki Stannard
Partner
+44 (0)20 7430 5913
kstannard@fitzandlaw.com
Carla Graves
Director
+44 (0)20 7430 5936
cgraves@fitzandlaw.com

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