Pre Year End Tax Planning

March 6, 2018 Tax Planning

When it comes to year-end planning there are a few opportunities that the law provides to help mitigate your tax liability, used correctly they can help you save thousands this year, and in the future.

Below we have listed and explained some opportunities that you might not be aware of to help when planning your year-end:

  • Dividends – up until 5th April 2018 your first £5,000 of dividends are tax free…from 6th April 2018 the government is reducing this allowance to £2,000!  Consider paying a dividend before the end of the tax year.
  • Inheritance tax – you can give away up to £3,000 as gifts every year without any inheritance tax consequences, and if you did not use your allowance last year you can take advantage of it this year as well.  Another way to remove cash out of your estate inheritance tax free is with a little planning, for example, utilising “gifts out of income”.
  • Capital gains annual exemption – this year you can realise capital gains of up to £11,300 p/person without paying any tax.  Alternatively, if you can sell the assets piecemeal, do so partially this tax year and partially next – that makes your total exemption £23,000 (with the allowance increasing to £11,700 in 2019).  You could also transfer some of the assets (tax-free) to your spouse before the sale utilising their annual exemption.
  • Pensions – the annual limit of tax-free contributions is currently £40,000 (although this reduces to £10,000 for higher-earning individuals).  You can utilise your unused allowances for up to the previous three years in certain circumstances.  However, once that three-year window has gone, that extra allowance disappears.

Pensions are still a tax-efficient way to save for your retirement.  But be aware that if you go over your limit all the tax benefit disappears, and you have to pay tax on excess contributions at high rate.  Pensions are a complicated area and advice is always recommended, speak to your advisor for the correct advice.

If you are open to more riskier (legitimate) options, then Venture Capital schemes may be attractive to you.  These schemes known as Enterprise Investment Schemes, Seed Enterprise Investment Schemes and Venture Capital Trusts are designed to encourage investment in start-up businesses looking for external capital for growth.

All venture capital schemes offer attractive tax reliefs of 50% of the amount invested (for Seed EIS) up to fixed annual limits.  Your gains are tax free if you hold the shares for a set period and then sell, if you lose money you get tax-loss relief.  These schemes are continuously being refined to aim only at true capital risk, so whilst you may lose money on the investment, there is a significant tax cushion.

We are not qualified to give specific investment advice but can always point you in the right direction should you wish to explore these further.

Tax planning at the end of the year should not only focus on available tax reliefs, you should also use it to review how your finances and business is structured, it should also be a time for planning, what do you intend to do in the next 5 years, buy a business, sell a business, an asset, retire, or invest in someone.  This gives you chance to take advantage of current tax schemes, plan for forthcoming changes and make sure your money works as tax efficiently as possible before it’s too late.

The above is for guidance only and does not constitute advice.  Always, speak to a suitably qualified individual before undertaking any planning.