Spring Clean your Finances – Year End Tax Planning by ASM Chartered Accountants
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regular review of your tax affairs( at least once a year) is an opportunity to reduce the taxman’ s take from your family. The period leading up to the end of the tax year on 5 April is one of the best times to review your taxes and finances.
Tax saving tips for the family
Each spouse is taxed separately, and so it is an important element of basic income tax planning that maximum use is made of personal reliefs and the starting and basic tax rate bands.
If you are selfemployed or run a family company, consider employing your spouse or taking them into partnership as a way of redistributing income.
Child Benefit If you are in receipt of Child Benefit and either of you or your live in partner( widely defined) have income above £ 50,000 then it is possible that you may have to pay back some or all of the benefit.
This could be avoided by reducing income for this purpose.
Examples include making additional pension contributions or charitable donations or reviewing how profits are shared and extracted from the family business.
National insurance matters
If a spouse is employed by the family business it may be worth paying earnings in 2016 / 17 of between £ 112( the employee lower earnings limit) and £ 155( the employer threshold) per week.
There will then be no employer or employee contributions due on the earnings but entitlement to a state retirement pension and certain other state benefits is preserved.
Capital gains tax Annual Exemption
The first £ 11,100 of gains made in 2016 / 17 are CGT free being covered by the annual exemption.
Each spouse has their own annual exemption, as indeed do children. A transfer of assets between spouses may enable them to utilise their annual exemptions.
Consider selling assets standing at a gain before the end of the tax year on 5 April to use the annual exemption.
Investments – are yours tax efficient? Individual Savings Accounts Individual Savings Accounts( ISAs) provide an income tax and capital gains tax free form of investment. The maximum investment limits are set for each tax year and the 2017 limit is £ 15,240.
To take advantage of the limits available for 2016 / 17 the investment( s) must be made by 5 April 2017. Pension Contributions From the 2016 / 17 tax year the standard annual allowance of £ 40,000 for pension contributions is reduced by £ 1 for every additional £ 2 of an individual’ s‘ adjusted income’ over £ 150,000.
This means that the Annual Allowance will be £ 10,000 for individuals with annual income of £ 210,000 or more.
The annual allowance takes into account employer and employee contributions.
It is important to take advice on contribution levels because if the total contributions you make, or that are made on your behalf, exceed your available allowance( including any unused relief brought forward), a tax charge will arise effectively withdrawing tax relief on the excess contribution.
Landlords – Consider using a Limited Company
With restrictions on loan interest deductions on the way, in some circumstances there may be tax advantages in forming a limited company to take over the running of a property letting business.
As long as the loan interest paid does not exceed £ 2m a year, companies will still be able to deduct interest in full as an expense when calculating their letting profits.
In addition, the company will only pay tax at 20 per cent on the rental profits, but additional taxes maybe incurred when funds are withdrawn from the company.
Using a limited company for your property portfolio may not be advisable for landlords with a small number of properties, but where you have 4 or more properties it should be considered.
Inheritance Tax Review and Update your Will It is vitally important to regularly review and update your Will as financial and family circumstances change and tax rules evolve. Do your Assets qualify for Relief? Inheritance tax( IHT) is payable on the chargeable value of your estate above £ 325,000. However, several types of asset qualify for 100 per cent relief from IHT once held for two years.
So consider realising your current assets
and reinvesting in business and agricultural assets, shares in private trading companies( including AIM listed shares) and trading partnerships.
Cash and buy to let properties do not qualify for Inheritance tax relief, so they will require particular attention.
MOREINFORMATION
ASM Chartered Accountants have six offices in Newry, Dundalk, Dublin, Belfast and Dungannon. The 160 strong team specialises in a range of accountancy disciplines including, corporate finance, insolvency services, forensic accounting, audit & accounting, consultancy services, internal audit, tax, hotel, tourism and leisure.
To speak to Ronan McGuirk, Director, ASM Chartered Accountants, Newry, call 028 302 69933 or email ronan. mcguirk @ asmnewry. com Visit www. asmaccountants. com for further details.
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