2012 Year end planning
Written by Ray Coman
Long term plans are not likely to be much affected by the nearness of the end of the tax year. Nevertheless, with 5 April 2012 approaching, consider the following tips which may be useful in saving tax before it is too late.
Make use of your ISA allowance. Up to £5,340 can be invested in cash and up to £10,680 overall. Both gains and income in the ISA are tax free. Any unused ISA allowance is not carried forward to the next year. If unused by the 6 April it will be wasted.
Use the capital gains tax allowance. Similarly, if unused the allowance would be wasted. Tax can be saved by disposing of an asset over different tax years than all at once. If you hope to repurchase the asset, however, you have to wait 30 days or the allowance could still effectively be wasted. Consider also that gains can be taxed much less in a year where income is lower. Gains can also be effectively transferred to spouse via the 'nil gain/ nil loss' rule, so potentially two lots of allowances are available to a couple.
Invest in a pension up to £50,000 per year. Once more, unused allowance cannot be rolled forward. Especially if you are anticipating retirement, spreading contributions to £50,000 per tax year will be more tax efficient.
If you own a company, consider taking dividends to use up the basic rate tax, or delay profit extraction to avoid higher rates. It may be a suitable time of year to contact your accountant for year-end tax planning.
If you are a business owner, review the opportunities to delay income, bring forward expenses and outlay on capital and write off stock, assets and bad debts. The tax will be effectively relieved a year sooner, where profits are reduced before the end of the accounting year. On the other hand, where your effective rate of tax for 2012/13 is less favourable, lower profits this year would be less favourable.
For inheritance tax, gifts of up to £3,000 per year are tax free, and the unused allowance for the previous year can be brought forward. A gift of up to £6,000, or potentially more on the occasion of a wedding, could escape any eventual inheritance tax at 40%.
Consider when to cash in investment bonds, as the profits will increase your overall income, potentially bringing you into higher rates of tax.
The advice in this article is of a general nature not intended to be acted upon. Please contact your accountant to discuss your particular circumstances and the opportunities for tax saving that may be available. Coman & Co. Chartered Tax Advisers would be pleased to assist with any queries.
Self-assessment tax and Class 4 national insurance is due by 31 January after the end of the tax year. However, payments towards the following year's tax liability can also be payable on 31 January in the tax year and 31 July after the end of the tax year. These are payments on account towards next year's tax liability. Payments on account are half of the previous year's liability. When your actual tax has been calculated, any balancing payment is due by the following 31 January, or a repayment is issued if the payments on account are more than the tax owed.