Menzies Partner Peter Noyce outlines some proactive steps you and your business can take as we approach the end of the 2016/2017 tax year.
TAX PLANNING RELIEFS
Looking first at tax matters associated with taxable profit, the following reliefs should not be overlooked and can be reviewed by Menzies:
CAPITAL ALLOWANCES – DO NOT WASTE YOUR ALLOWANCES
It is recommended that you monitor capital expenditure to ensure you effectively use the 100% Annual Investment Allowance (AIA) and the Enhanced Capital Allowance.
As of 1st January 2016, AIA was set at £200,000 and this new permanent allowance rate remains in place. Please note that those partnerships with corporate members will not be able to access an AIA.
BUILDINGS PURCHASE AND IMPROVEMENTS
Do not forget that a building purchase and any improvements made may incorporate a substantial qualifying spend for Capital Allowances and thereby reducing tax payable. If you are about to (or in fact already have) undertaken any significant expenditure on your building this relief can be very valuable.
Many professional service firms have, in recent years, incorporated and use dividends as a method of efficiently extracting funds from the business. These rules changed from 6 April 2016 and advice should be taken to plan for this increased exposure, broadly adding 7.5% to the tax effect of receiving dividends at all levels.
INDIVIDUAL TAX RELIEFS
Turning to more specific tax relief matters for individuals, the following should be considered:
Following changes in “disguised salary” rules for LLPs a couple of years back, more Partners of professional service firms are likely to have borrowings to fund capital. Therefore, it is important to ensure that these are communicated to your tax advisors so that interest on any borrowed funds during tax year 2016/2017 can be claimed as a deduction against your taxable income.
FORECASTING INCOME LEVELS
Businesses may have accounting year-ends forming the basis period for 2016/2017 that have already ended. Therefore, consider the higher rate thresholds of £100,000 to £122,000 (60%) and greater than £150,000 (45%) and any tax planning opportunities arising. Examples of such opportunities would be:-
Higher rate tax payers who make personal contributions to pensions before 5th April 2017 will benefit from a reduction in their income tax liability. A pension contribution may be particularly attractive to individuals with income in the £100k – £122K bracket as not only will they benefit from higher rate tax relief but they may also benefit from restoring their personal allowance. High earners with total income exceeding £150K need to be aware that their annual allowance will be restricted by Pension Tapered Tax Relief although those that are quick to act may be able to take advantage of the carry forward rules to utilise unused allowances from previous tax years. Finally if you are minded to make pension contributions, don’t forget that the Lifetime Allowance has recently been reduced to £1million. If you would like independent advice about pension planning we would be pleased to introduce you to Menzies Wealth Management.
With the tax thresholds in mind do not forget to record your gift aid payments as these can be very valuable. A donation of £80 allows the charity to claim a further £20 of income tax from HMRC and if you are a 40% tax payer, then you can also claim a further £20 from HMRC. In addition, contributions paid prior to the submission of your tax return (i.e. in the new tax year) may be carried back to the previous year and thus reduce your tax bill. For those considering more substantial donations, some careful planning could reap substantial tax savings.
From 6 April 2017 up to £20,000 can be invested annually into an ISA. Be aware that the annual deadline for investing into an ISA is 5 April 2017; current limit £15,240.
CAPITAL GAINS TAX ANNUAL EXEMPTION
Gains of up to £11,100 can be made in 2016/17 before any tax becomes payable.
With some asset values/sectors having appreciated greatly in recent months and years, it may be that you are lucky enough to possess assets with a pregnant gain. Therefore, consider which assets could or should be sold prior to 5 April 2017 to take advantage of this tax-free amount, which is per person and available to both husband and wife.
INHERITANCE TAX ANNUAL EXEMPTIONS
Gifts of up to £3,000 per year can be made on a tax-free basis. The limit increases to £6,000 if the previous year’s annual exemption was not used, and do not forget gifts out of income.
Rental income – reducing relief for mortgage interest.
Those who have opted for a property rental portfolio will almost certainly have reviewed this likely effect going forward; increasing tax liabilities can be mitigated but only by the implementation of detailed planning.
The above represent an overview of tax planning that could be relevant before 5 April 2017 but advice relevant to each individual situation should be sought prior to implementation.
For further information on the above, please contact Menzies Partner Peter Noyce by email at email@example.com or by phone on 01483 758915. Alternatively, please contact your regular Menzies LLP Relationship Partner.
Please note: this publication has been prepared only as a guide and is not intended as advice. No responsibility can be accepted by Menzies LLP for any loss from acting or refraining from acting as a result of any material in this publication.