Year End Tax Planning 2016/17
Effective tax planning is about knowing the taxes you are liable to pay and acting to legally minimise them. It is also about maximising your net income and creating opportunities to invest and save tax-efficiently.
While there is no doubt that the tax system is complex, you should not let complexity deter you from a simple goal: keeping your taxes as low as possible. Below we mention some of the key areas you should consider if applicable to your particular situation.
Ensure each spouse uses their full Personal Allowance for Income Tax purposes where possible.
PERSONAL ALLOWANCE FOR HIGH EARNERS
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000.
If a self-employed person or family company employs a spouse to assist in the running of the business, the spouse could be remunerated fairly to utilise the tax-free Personal Allowance.
MINOR CHILDREN AND TEENAGERS
Minor children are entitled to Personal Allowances.
INDIVIDUALS WITH NO TAXABLE INCOME
Pension contributions of up to £3,600 gross per year can be made by individuals with no taxable income.
TAX-RELIEVABLE PENSION CONTRIBUTIONS
The Annual Allowance for making tax relievable pension contributions is £40,000.
TAX-RELIEVABLE PENSION FOR HIGH EARNERS
For high earners, the Annual Allowance definition is more complicated, but those with an annual ‘adjusted income’ of more than £150,000 will be reduced to as little as £10,000 for 2016/17.
PENSION LIFETIME ALLOWANCE
The pension Lifetime Allowance – the total amount of UK pension savings each individual is allowed to build up in their lifetime – is currently £1m.
If appropriate to your particular situation, the use of tax-favourable investments such as Individual Savings Accounts (ISAs), Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS) and Venture Capital Trusts (VCT) should be reviewed.
Considerations should be given for ‘Timing of Income’, ‘Company Dividends’, ‘Capital Gains Tax’, ‘Inheritance Tax’ & ‘Reviewing Your Will’. If you wish to discuss any of the aforementioned tax planning opportunities in more detail or if you would like to review your current situation then please do not hesitate to get in touch and arrange a free consultation.