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End of year tax planning

There have been some significant changes announced in the March 2012 budget and December 2012 Autumn Statement.  As ever, there are some which present opportunities for tax saving.  Here are some of the key areas you may want to consider prior to the end of the tax year on 5 April 2013:

Personal tax

The 50% additional rate of income tax on incomes above £150,000 will reduce to 45% on 6 April 2013. For those who fall into this band, it may be beneficial to defer income from 2012/13 to 2013/14 where possible, as this will save 5% on the top slice of taxable earnings.

Also, those with incomes above £100,000 continue to suffer a withdrawal of their personal allowance at a rate of £1 for every £2 over this amount. Due to this, for 2012/13, taxpayers with income between £100,000 and £116,210 will have an effective tax rate of 60% on this band.  You could therefore consider deferring income/bonuses or opting for pension contributions as an alternative to salary.

Child benefit changes

The high-income child benefit charge (HICBC) applies to those earning more than £50,000 a year, with a 1% charge on the benefit paid for every £100 of income over this threshold.  Households with an individual earning £60,000 or more will have the benefit withdrawn completely.

We can help work out your HICBC charge and help complete self assessments.  We can also look at ways to legitimately reduce adjusted net incomes to lessen HICBC liabilities, such as paying more into a company pension scheme, salary sacrifice or through charitable donations.

Pension changes

The maximum annual contribution to pensions is to reduce from £50,000 in 2012/13 to £40,000 from 2013/14 onwards.  Contributions at the higher level must therefore be made by 5 April 2013.  For those taxpayers wishing to pay more than the annual maximum, the ability remains to contribute any unused contributions from the previous 3 years.  For example, a taxpayer who had paid no contributions since 6 April 2009 could pay £200,000 prior to 5 April 2013 (4 x £50,000).

Tax efficient investments

Personal. Have you made use of your annual ISA allowance? For the 2012/13 tax year, individuals can invest up to £11,280 in total, with a maximum of £5,640 in cash, into an ISA which offers tax relief on the income and gains. Junior ISAs for under 18s are also available.

Business. There are several tax efficient investment schemes for individuals seeking to invest in UK businesses, the main ones being: the Enterprise Investment Scheme (EIS), the Venture Capital Trust (VCT) and the Seed EIS (SEIS).  As is usually the case, the higher the investment risk the greater the tax advantages to be gained. For example, the EIS offers 30% tax relief on large investments into growing businesses and capital gains exemption on shares after a qualifying period. The new SEIS offers a greater range of benefits providing investment is made into a smaller business at the start of trading.

Download the full Power In Numbers Newsletter here.

Robin Lloyd, Director, Chandlers Ford