Investment Property Accountants - WARR & CO

Investment Property Accountants

Tax Year End Planning

With the tax year almost at an end it is a good idea to review your tax affairs to see if you can usefully carry out any simple planning to improve your overall position. For many individuals, it is a case of take advantage of an opportunity now or lose it for good.

We set out below some of the key areas to consider at this time.

Personal Allowances
Have you and your spouse or civil partner covered your personal allowances? If not, is there any action you can take to accelerate income into the current tax year?

Tax Rates
If you are an owner manager of a limited company, have you drawn sufficient income to cover your basic rate tax band? If not, is there scope to draw a further dividend before 5th April 2009? In the 2008/09 tax year an individual starts to pay higher rate tax when his gross income exceeds £40,835. Dividends are received net of a 10% tax credit, so a £9,000 dividend is equivalent to £10,000 gross income.

If you are self employed and the level of your profits means that you are a higher rate taxpayer, can you do anything to reduce them? Under the new capital allowances regime for example a 100% allowance is available on plant purchases of up to £50,000 per annum. Can you accelerate the purchase of any plant?

National Insurance
A tax year will only qualify for state pension purposes if:

  • you have received a salary throughout the year in excess of the lower earnings limited;
  • you are self employed and pay Class 2 National Insurance;
  • you pay voluntary contributions; or
  • you are entitled to credits (e.g. as a carer).

Those retiring after 5th April 2010 need just 30 qualifying years to qualify for a full state pension, so take care before making voluntary contributions. If you do wish to make voluntary contributions, try to do so before 6th April 2009 as the cost is increasing by about 50% from that date.

Capital Gains Tax (CGT)
Look at your capital gains position carefully. You may have realised gains in excess of the annual exemption and also be holding shares at a loss. You can dispose of some or all of these shares before 6th April 2009 and eliminate your liability. Alternatively, you may have not used your annual exemption but be holding shares at a gain. You can sell these shares before 6th April 2009 to cover your annual exemption. There is a tax trap here. If a sale and re-purchase take place within 30 days they are matched and any tax planning is ineffective. These matching rules do not apply, however, if you sell shares and your spouse acquires them all within a 30-day period.

Do you regularly donate to charity? If so, and if you have used your capital gains exemption, consider gifting shares which stand at a gain. For example, suppose you hold £1,000 worth of free shares from a demutualisation. If you sold these you would pay £180 capital gains tax. If instead you gifted them to a charity, you would pay no tax, the charity would claim back £282 under gift relief and if you were a higher rate taxpayer you would get back £250. Had you just sold the shares and not made a donation your net proceeds would have been £820. So with the higher rate tax relief, you are out of pocket by £570 and the charity has £1,282.

Inheritance Tax (IHT)
If you have a high potential inheritance tax liability consider gifts. You can gift up to £250 per annum to as many individuals you like and in addition you can make an annual gift of £3,000. Further, if you haven’t used last years annual allowance, you can gift £6,000.

Pension Planning
You can contribute up to one times your earned income subject to a maximum of £235,000. If your earnings are very low (or nil) you can contribute up to £3,600. You may also contribute up to £3,600 for a child.

Tax Efficient Investments
Consider investing in ISAs, VCTs, and EIS schemes. All can provide tax-free growth. Tax relief of 30% is available for investment in VCTs and for EIS 20% tax relief is available. In addition, capital gains may be reinvested into an EIS.

Date of Article: 16th March 2009

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This domain is owned by Warr & Co Chartered Accountants which is a member of the Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Peter Edwards on 0161 477 6789 or email us at