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The arrival of a new tax year (on 6 April) always provides an opportunity to take a step back and look at how you are managing your personal finances and your business and consider how you might reduce your taxes and/or improve your financial and business strategies. Tony Moorby, director of taxation at PKF Accountants and business advisers believes that acting now could pay dividends in the future.
“While there may be occasions in life where leaving things to the last minute – such as a late holiday booking – can save money, in other areas any delay could cost you. Tax planning is such an area,” he said.
“Effective planning requires time and consideration, but you could significantly reduce your business and personal tax burdens by taking a careful look at your circumstances. Doing so will enable you to reap significant benefits later on.”
Here are Tony’s top 10 tax tips:
1. Allocation of income and reliefs – Married couples should consider maximising the use of personal tax allowances and the 10% and 22% tax bands by transferring income-producing capital to the spouse with the lower income.
2. Claiming child tax credit – This allows UK residents with children under the age of 19 and whose total family income is less than £58,000 to apply for this means-tested state credit.
3. For investment planning, maximise contributions to personal pension plans and retirement annuity policies up to the limits determined by age and type of policy, with tax relief being available at the payer’s highest rate of tax.
4. UK residents aged 18 or over can invest in one maxi Individual Savings Account (ISA) or three mini ISAs, all of which can provide exemption from income tax and/or capital gains tax.
5. If you run a business or are an employee, check your benefits-in-kind position and look to minimise it. For example, mobile phones are exempt from tax when provided by an employer and can be a cheaper option then paying an employee’s own phone bill.
6. Be aware that the rate of first year capital allowances for purchased assets fell from 50% to 40% from 31 March 2007. All businesses benefit from 100% allowances for investing in certain energy-efficient plant and machinery.
7. Business managers also need to consider the dates when bonuses and salaries are paid. It may be possible to defer any tax charge or utilise different rate bands if the payments due to be made around 5 April 2007 are delayed until 6 April.
8. Those who own a second property can gain interest relief for equity release in certain circumstances. Rental properties could therefore be used as a source of raising finance for personal expenditure or investment purposes whilst the interest paid could qualify for tax relief.
9. Anyone who has investments should try to realise any capital gains up to the £8,800 annual exemption limit (which is available to each individual including children), since this exemption cannot be carried forward.
10. For gifts, any past inheritance tax planning that involved the use of gifts or one or more trusts and the family home should now be reviewed following recent changes in the rules. Remember to use the personal annual exemptions for inheritance tax purposes to pass on cash or assets tax-free.
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