No fracas here, just sensible tax planning

Timing matters in the world of tax 

With less than a month to go until the end of the tax year we highlight some tax planning options worth considering before 5 April.

Pension Contributions

Higher rate tax payers are entitled to tax relief on personal pension contributions and of course the contributions increase the value of your pension fund.   Sweeping changes to pensions are set to be introduced from 6 April 2015. Most taxpayers aged 55 and over will have much greater flexibility going forward when looking to draw down their pension savings. It is important to take specialist pension advice prior to making any pension contributions or decisions relating to accessing your pension fund on retirement in light of the new legislation.

Individual Savings Accounts (ISAs)

Investing in an ISA is a simple, straightforward way of investing tax-free. The new accounts (NISAs) introduced on 1 July 2014 have an annual limit of up to £15,000 which can be invested in cash or in shares or in a combination of both. The savings are not subject to income tax nor capital gains tax and as of 3 December 2014 ISAs can be transferred between spouses or civil partners on death.

The ISA limit will be increased to £15,240 in 2015/16.

Junior NISAs are also available (where a child does not already have a Child Trust Fund) with an annual subscription limit of £4,000. The Junior ISA limit will be increased to £4,080 in 2015/16.

Gift Aid donations

Higher-rate tax payers can claim tax relief in respect of gifts to charity so top up any such donations prior to the tax year end.

Land Taxes

From 1 April 2015 Stamp Duty Land Tax (SDLT) will no longer apply in Scotland and will be replaced with a Land and Buildings Transaction Tax (LBTT) on the purchase of property, with rates that will be different from those under SDLT.  Individuals thinking of buying or selling a property should be considering the impact of the switch to LBTT for Scottish properties and may wish to settle transactions either before or after 1 April in order to obtain the most favourable result.

Capital Gains Tax (“CGT”)

Each individual has an annual CGT exemption of £11,000 in 2014/15. If you have not used your 2014/15 annual exemption and intend to dispose of an asset which is likely to give rise to a CGT charge, it is worth considering whether to make the disposal prior to 5 April.

Conversely as CGT is payable on 31 January after the end of the tax year in which you make the disposal there may be circumstances which warrant delaying a major sale until after 5 April 2015 to give yourself an extra 12 months before you have to pay the tax.

There may also be opportunities to transfer assets between spouses or civil partners prior to a disposal (which can be done free of CGT) to take advantage of two annual exemptions or to take advantage of a lower tax rate if one partner is a basic rate tax payer.

Non UK residents should also take note that as of 6 April 2015, they are brought into the CGT regime when disposing of UK residential property. While property valuations will in most cases, be recalculated to 5 April 2015, so that only future gains are caught and taxed, it is well worth reviewing the likely CGT exposure, particularly if a sale or transfer of the asset is contemplated in the future.

Inheritance Tax (“IHT”)

Each individual has an annual IHT exemption of £3,000. This means that you can gift £3,000 each tax year without any IHT implications. If you haven’t used your exemption for 2013/14 this can be used prior to 5 April also. If it is not used by 5 April it will be lost.

Other Tax Planning Options

Enterprise investment scheme

The enterprise investment scheme (EIS) gives tax relief for investing in new shares in relatively small qualifying trading companies that are not listed on any stock exchange.

• Income tax relief is given at 30% on up to £1 million invested in 2014/15.
• Gains on those shares escape CGT after three years.
• It is possible to defer CGT on a gain of any size, on the disposal of any asset, by reinvesting the gain in shares that qualify under the EIS. An EIS investment can be used to defer gains made up to three years earlier.

Seed enterprise investment scheme (SEIS)

This allows individuals to get 50% income tax relief on investments of up to £100,000 a year in start up companies. In addition, potentially half the investment can be matched with gains arising on the disposal of assets in 2014/15.

Venture capital trusts

You can obtain income tax relief of 30% by subscribing up to £200,000 for shares in venture capital trusts (VCTs) in 2014/15. Gains are generally exempt from CGT. VCTs are investment trusts that invest in a range of relatively small trading companies.

Remember EIS and SEIS shares and VCTs are high-risk investments and so may be difficult to sell.

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For More Information Contact:
Julie McMahon
Mobile: 07841 920094
Direct Dial: 0141 530 2021
Email: jmcmahon@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.