The end of the tax year on 5th April is fast approaching, and this is always a good time of year to think about ways to structure your business and personal finances so that they are as tax-efficient as possible.
With new rates and various legislative changes due in the 2016/17 tax year, here are some of the planning strategies you might wish to consider. Do contact us to discuss how you might benefit.
Every individual has their own tax-free personal allowance for income tax purposes, which for 2015/16 is £10,600 for those born after 5th April 1938 and £10,660 for those born before 6 April 1938.
Where a spouse or partner has little or no income, transferring income or income-producing assets to them can help to make the best use of their personal allowance. However, take care to avoid falling foul of the settlements legislation governing ‘income shifting’, and consider the legal consequences of transfers.
Meanwhile, the Marriage Allowance means that, in this tax year, up to £1,060 of an individual’s personal allowance may be transferred by eligible spouses and civil partners to their husband, wife or civil partner, where neither pays tax at the higher or additional rate. This can reduce their tax bill by up to £212.
In 2015/16 the 40% higher rate of income tax begins when your taxable income exceeds £31,785. However, if your income exceeds £100,000 you could actually be liable to an effective rate of 60%! This is because your personal allowance is clawed back by £1 for every £2 by which your adjusted net income exceeds £100,000. An individual with an adjusted net income of £121,200 or more will not be entitled to any personal allowance at all, resulting in an effective tax rate on this slice of income of 60%.
However, with care, it may be possible to reduce your taxable income and retain your allowances. Possible strategies include delaying income into the next tax year or increasing your payments int