The tax return silly season has just finished and for some of us it was hell; however, it’s not too late to start tax planning for the end of the tax year which is still a month and a half away.
There are certain things that anyone can do to help minimise their tax liability for this tax year. Here are a few of the basic ones:
- Make pension contributions to a personal pension scheme – this has the effect of increasing your basic rate band so that the level at which the higher rate tax kicks in increases. If your pension annual allowance has been fully used for the current year, you can carry forward unused allowances from the previous 3 tax years.
- If you have a limited company, make contributions to your pension. Your company will receive tax relief against corporation tax and won’t have to pay National Insurance. Also, you won’t have to pay personal tax on any contributions.
- Pay into an ISA (Individual Savings Account). The interest you earn on your ISA is tax free. For 2017/18 the maximum you can pay in is £20,000, so if you are a couple remember to use both your ISA allowances. If you have children, also think about setting up a Junior ISA, as up to £4128 can be invested. Take a look at the different types of ISAs available.
- Use your annual ‘gift allowance’. You can give away assets or cash up to total of £3,000 each year without incurring Inheritance Tax. You can also use up any of last year’s unused allowance.
- Gift aid donations – this also increases your basic rate band. The only downside of the Gift Aid scheme is if you haven’t paid enough tax either during the year through PAYE or on your self-employment you will need to pay this tax as part of your end of tax year liability.
- Venture Capital Trusts (VCTs) – if you have used up your pension and ISA allowances, you may wish to consider VCT investing, which offers generous tax benefits. VCTs invest in small or early-phase businesses which need investment in order to develop. They can potentially give you a high return, but can also be a high-risk option.
Whilst you are busy tax planning, it’s also worth taking the time to make sure any investments are performing well. If the returns are poor, consider moving them.
Finally, don’t leave your tax return until the last minute! I know this sounds obvious, but if you do and end up with an unexpectedly large tax liability (usually due to payments on account kicking in), you won’t have enough time to save the money to pay the bill.
If you have any questions about tax planning or would like some advice on how to minimise your tax liability, please get in touch.