Steven Mugglestone

The more I learn, the less I know

Top Tax Tips to Consider Before April 2013

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MGC Hayles always start with safe and sound tax planning advice and solutions.  There is still much to be achieved through the use of recognised government incentives and tax breaks.  With only a month to go before the end of the tax year, now is the time to use up any remaining allowances and start preparing for some of the changes that will come into effect on 6 April.

The UK tax system still continues to incentivise the self-employed and employees to maximise their personal contributions to personal pension plans. The annual contribution limit for an individual (the total of personal contributions and those made by an employer) is the lower of 100% of net relevant earnings or £50,000. For personal contributions below this threshold, tax relief is available at the individual’s marginal rate of tax. With this in mind, the forthcoming reduction in the top rate of income tax to 45% may provide a reason for some individuals to bring forward their pension contributions to before 6 April.

A big reminder is that unused allowances from the past three tax years can still be brought forward and factored into the calculations – in other words, unused allowances in 2009/10, 2010/11 and 2011/12 will be available for carry forward into the current financial year. As a result, it may be possible to contribute up to £200,000 (or even £250,000 in some circumstances) before 6 April and obtain tax relief of as much as 50% on the whole sum. You must, however, have been a member of a registered pension scheme in the tax year from which the unused relief is to be carried forward.

Capital gains up to the £10,600 annual exemption can be realised tax free in the 2012/13 tax year, and any gains above this threshold are then taxed at either 18% or 28%, depending on the individual’s marginal rate of income tax. Unused exemptions cannot be carried forward into future tax years and are therefore effectively lost.

Married couples and civil partners can still transfer assets between themselves on a no gain/no loss basis, so making appropriate transfers can ensure that both individuals’ annual exemptions and basic rate bands are fully utilised for capital gains tax (CGT) purposes. It is important to ensure that any such transfer is outright and unconditional.

Now is the time to use up any remaining ISA allowances to which you and your family are entitled. UK residents aged 18 or over can invest in one stocks and shares ISA and one cash ISA each year subject to the overall £11,280 limit for 2012/13. Where possible, the full entitlement should be used, either by paying the full amount to a stocks and shares ISA or by paying into a combination of the two, subject to a maximum of £5,640 for cash ISAs. Holders of cash ISAs can switch the funds into equity investments at any time. The limits in 2013/14 will be £11,520 with up to £5,760 in cash.

Parents who have used their own ISA limits can invest for a further £3,600 for children under the age of 18 through a junior ISA. Junior ISAs operate in a similar way as adult ISAs – income and capital gains generated will be tax-free. This applies even where the capital is provided by the parents (normally annual income in excess of £100 is taxed on the parents in such circumstances). However, withdrawals from a junior ISA before the child reaches age 18 will result in the loss of the tax benefits.

The rules regarding venture capital investment are still complex, the basics are that investments made in venture capital trusts (VCTs) and enterprise investment schemes (EISs) may qualify for income tax relief and EIS investments can be exempt from CGT on disposal. In addition, CGT due on other assets that you have sold can be deferred if the disposal proceeds are reinvested in a company qualifying for EIS deferral relief.

Investing in start-up enterprises qualifying for the seed enterprise investment scheme (SEIS) carries even more risk than EIS and VCT investments, but it is now possible to obtain substantial tax relief to offset a large part of any potential losses.   Under the SEIS, an individual can invest up to £100,000 in small start-up companies in a tax year and claim income tax relief at 50% – even if he or she is not a 50% taxpayer. In addition, a special rule for capital gains made in 2012/13 potentially provides relief from CGT at 28% as well.

If a loss is ultimately made on the investment, this can be claimed against income in a later year and could trigger tax relief of as much as 100.5% on the original investment.  SEIS investments, however, are not regulated by the Financial Services Authority, so should only be considered by experienced business owners and investors practiced at making direct investments.

HMRC has already started issuing tax coding notices for 2013/14 to employed individuals and those receiving occupational or personal pensions. It is important that these are checked carefully to ensure that the best possible estimate of the amount of tax due is deducted from your monthly income for 2013/14.

HMRC will often include an adjustment for higher rate tax due on the investment income that it expects an individual to receive during the year. You do not have to accept such deductions and you should let HMRC know if you want them removed from your tax code; you will instead have to pay via self-assessment on 31 January following the end of the tax year. If you do decide to let such adjustments stand, it is important to ensure that any such adjustment in your tax code is based on a realistic estimate of your likely income. Similarly, individuals whose annual income will exceed £100,000, or whose pension contributions will be changing significantly, should check that the correct allowances or reliefs are shown.

Call Hardika Dholakia in Leicester on 0116 233 8500 to find out more about safe and sound tax planning and advice.

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Written by Steven Mugglestone

March 5, 2013 at 1:00 pm

Posted in HMRC, Tax

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