Two weeks to the end of the 15/16 tax year. Still time to do some last minute tax planning………………….
Personal Pension Payments: If you are a 40% tax payer, and have received PAYE income during the year, a payment into a personal pension from taxed income will get you 40% tax relief. The pension company will gross up the payment by 20% and your Basic Rate Band will be increased by the amount of the gross pension payment. The money has to actually be paid in the the tax year.
ISA Contributions: If you have money in a taxable savings account or are investing in stocks and bonds then it makes sense to do this through an ISA. The 15/16 allowance is £15,240.
Dividends: If you run a Company consider declaring a larger than usual Dividend if your Company has the reserves. The new 7.5% dividend tax comes in on the 6th of April so dividends declared before the end of this tax year will avoid this.
Inheritance Tax Exemptions: You can gift up to £3000 a year plus as many gifts of less than £250 to other people as you like. The £3000 exemption can be carried forward for one year but otherwise these exemptions are lost as the years go by.
Capital Gains: If you have potential Capital Gains then selling now to use your CGT allowance is sensible. However a reduction in CGT rates was announced in the Budget last week so it may be worth waiting if part of the gain is taxable.
Child Benefit: If your income is over £50,000 then your Child Benefit will be progressively reduced. Income reduction through Pension Payments or other means may be worthwhile.
These are just some of the measures that you can use to make sure you use all your tax allowances. If you would like any more help with your taxes please give us a call.
There are budget summaries a plenty across the internet but here is our take on some of the highlights that will affect our clients:
The Corporation Tax rate which was already due to fall will now fall further. It is due to fall from 20% to 19% in 2017 and will now fall to 17% by 2020. This will be good news for many of our clients and go some way to making up for the new Dividend Tax which is starting on April 6th this year.
The personal tax threshold continues to rise, up to £11,500 from 2017. However the NI thresholds aren’t going up at the same rate so for small business owners the salary they pay themselves still needs to be carefully considered.
The basic rate band is rising to £45,000 from next year which will be a welcome boost as this threshold has not been significanctly raised for years.
CGT rates have been reduced to 10% and 20% for basic rate and higher rate taxpayers respectively which is good news for some. However residential property now will have an 8% surcharge leaving it at the same rate as before. Entrepreneur’s Relief has been extended and is still available to those selling a business.
S455 tax, or the tax that must be paid in a Director’s Loan account is overdrawn more that 9 months after a Company’s year end, has been raised to 32.5%. This is to mirror the effective rate of tax that there will be after the new Dividend Tax starts this April.
P11ds will hopefully be on the way out for most Employers as the payrolling of benefits regime is extended. The budget included non cash vouchers which were previously excluded.
Class 2 National Insurance contributions for the Self Employed are to be axed saving each person £145.60 a year.
There were a couple of announcements on Stamp Duty on commercial buildings and Business Rate relief which apply to England only. We will wait and see how the Scottish Government responds to these.
There were plenty more minor changes. The full details are here: https://www.gov.uk/government/publications/budget-2016-documents/budget-2016#executive-summary
If you would like any advice on these changes please don’t hesitate to give us a call.
We are often asked about mitigating the tax on Buy to Let profits for married couples.
The basic rule is that the owner of the property pays the tax on the income. For example if the husband owns the property and is a higher rate tax payer then it is not possible for the wife to include the profit on her tax return to take advantage of her tax allowance and lower tax rate.
In this case the property could be transferred legally to the wife. This will not result in a Capital Gains Tax charge as spouse transfers are exempt. However there is a major potential catch with this in that if there is a mortgage on the property, and the transfer includes the other spouse assuming responsibilty for the mortgage, then Stamp Duty will be payable on the proportion of the property that is mortgaged.
If a property is owned 50:50 then the profits need to be apportioned equally between the spouses.
However if the property is purchased as “Owners in Common” (Tenants in Common in England) the actual percentage of ownership can be unequal. HMRC need to be notified of the unequal ownership by using Form 17 https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17 and then the profits can be apportioned in line with the ownership.
Legal advice should be sought for the purchase or transfer of a property.
Clients also need to be aware that HMRC has a computer system called “Connect” that collects data from the Land Registry as well as Companies House, the Benefits Agency, onshore and offshore banks as well as many others. So the ownership of a property is already known to HMRC and any attempt to bend the rules will ultimately be unsuccessful.
Just a reminder for employers that the new National Living Wage comes in to force on the 1st April 2016. There is little difference between this and the existing Minimum Wage but it is essentially a premium for workers who are 25 and over.
The current minimum wage rates are here: https://www.gov.uk/national-minimum-wage-rates
At the moment anyone over 21 gets the top rate. From April 1st there will be a new age break at 25. From that date the new National Living Wage will be £7.20 an hour. Full information here: https://www.livingwage.gov.uk
HMRC are running a series of Webinars for interested parties, the information is listed below you can sign up for an HMRC webinar on this page https://www.gov.uk/government/news/webinars-emails-and-videos-on-employing-people