News/Events

Tax-saving ideas as end of financial year approaches [3rd March 08]

Two weeks ago, I highlighted the change in basic rate tax from 6^th April 2008 and how this affected personal pension premiums. The same, of course, applies to donations to charities through the Gift Aid scheme. The donation is treated as being made net of basic rate tax, currently 22%, and the Charity can reclaim this tax from the Government. If the donor is a higher rate tax payer, they may be able to claim additional tax relief. 

Consequently, if a tax payer makes a donation of £78.00, the charity can currently reclaim £22.00 of tax and if a higher rate taxpayer then maybe a further £18.00 reducing the net cost to £60.00. With basic rate tax falling to 20% for 2008/09, then the amount of tax reclaimable falls to £19.50 for basic rate taxpayer with a further £19.50 tax relief for a higher rate taxpayer thus giving a net donation of £80.00 and £58.50 respectively.

So for a basic rate taxpayer, it may be worthwhile making donations before the 5^th April and increasing the donation going forward, so that charities don’t lose out!

With tax benefits in mind and the 5^th April rapidly approaching, I thought I would mention a few tax saving ideas and tips.

Firstly, tax payers aged 65 and over should consider how to make full use of the available age allowances. The higher allowances are gradually withdrawn once income exceeds £20,900. So, look at switching to non-taxable or capital growth orientated investments eg Investment Bonds or National Savings Certificates to avoid losing out.

Secondly, as personal allowances cannot be transferred between spouses / civil partners, then consider gifting of assets to even up the respective incomes. A transfer of just £1000 of savings income from a higher rate tax paying spouse to one below the personal allowance e.g. £5225 may save £400.00 a year. Another tip if you are self employed, consider employing your spouse or taking them into partnership as a way of redistributing income. But HMRC will make sure that there is justification.

Thirdly, if you are a non taxpayer with capital invested in a building society or bank, ensure you have completed the declaration to receive the interest gross. Also, should your only income be that from this source, don’t forget the 10% starting rate of tax would apply. As the first £2,230 of income (2007/2008) is liable at only 10%, you may be due a repayment as 20% is deducted automatically. Remember, tax credits on dividends for non tax payers are not repayable!

Lastly for Family companies, if the payment of bonuses to directors or dividends to shareholders is being considered then the date of payment could be critical as it could affect both the date when tax is payable and the rate applicable. An interesting alternative to a bonus for an employee is a pension contribution made by the company as this should be free from tax and national insurance.

This period leading up to the end of the tax year is good time to get your taxes and finances in order for both the current and the next tax year. Make sure you arrange a review with your IFA now before it’s too late.

 This article was written by Langtons - Published in the Western Morning News, This is Money, 3rd March 2008