The End of the Tax Year

With the General Election just around the corner now (the outcome of which is anyone’s guess) and the possibility of two budgets in the first half of the year, tax planning in the coming months could prove difficult.  There does however continue to be opportunities for many taxpayers to minimise the tax they pay, some of which may require action to be taken before 5 April and I will highlight a small selection of these as follows:

Individual Savings Accounts (ISAs)

Anyone who is a taxpayer and particularly those who are higher rate taxpayers should seriously consider ensuring that they use as much of their ISA annual investment allowance as possible.  This may mean reviewing your position and making any ‘top-up’ investments before 5 April.

The maximum allowance for 2014/15 is £15,000 which, following the changes introduced on 1 July 2014 which I have written about previously, can be held in any combination of cash, stocks and shares.

To be able to subscribe for a stocks and shares ISA you must be 18 or over and resident in the UK.  Note however that cash ISAs can be opened by those aged 16 or 17 and ‘Junior ISAs’ (which allow cash investments and investments in stocks and shares) are available to children under the age of 18 who live in the UK.

Gift Aid Payments

Don’t forget that, in respect of the 2014/15 tax year, higher rate taxpayers can claim an extra 20% of the ‘grossed up’ donation from H M Revenue & Customs (HMRC) for donations made during the tax year.  For example, if a donation of £80 is made to charity under gift aid during the year, the higher rate tax relief that HMRC will give you will be 20% of £100 i.e. an additional £20.  For additional rate taxpayers (those with taxable income above £150,000 for the year), the extra relief would be £25.

It may also be possible to ‘back-date’ gift aid payments to the previous tax year, which may be beneficial depending on the level of one’s taxable income for the previous year compared to the current year.  For example, a donation made in the year ended 5 April 2015 could be treated as if it had been paid in 2013/14 to obtain any additional tax relief in that year.

It is a good idea to keep a record of the gift aid donations you make during the year as you go along since it is very easy, come the end of the year, to forget all those family members and friends that you have sponsored to do silly things or run the Bath Half Marathon for example, all in the name of charity!

Pension Schemes

If you regularly make contributions to pension schemes, you may wish to consider a one off additional payment to be made before 5 April 2015 particularly if your total income for the current year may take you into the 40% income tax rate.  For most individuals that is at a level of income including interest from savings, etc., of about £41,900.

The tax relief for personal pension contributions works in a similar manner to gift aid payments as mentioned above and as a result, tax relief is available at your marginal rate of tax.

Inheritance Tax

If you wish to make use of the annual inheritance tax gifts allowance, up to £3,000 can be given in total to all recipients for the year ended 5 April 2015 and if that allowance was not used for the year ended 5 April 2014, that can also be utilised for gifts now, ie up to £6,000 could be gifted if there have been no earlier gifts in the last two years.  This could save up to £2,400 of inheritance tax.

In addition, small gifts up to £250 to each of as many individuals as the donor wishes to benefit can also be made.   This allowance cannot be used to cover part of a gift or gifts totalling more than £250 to the same individual during the same tax year.

The above are only a small selection of some of the tax planning points included in our annual publication, Financial Perspectives – End of Tax Year Guide Spring 2015 available to anyone who would like to telephone our offices or e-mail us at mail@pearsonmay.co.uk. Copies of this will be provided free of charge.

The above is for general guidance only and no action should be taken without obtaining specific advice