The Christmas period is coming to an end and as the New Year rolls in there comes with it the inevitable resolutions for the year ahead. However, by the middle of January you may have settled comfortably into doing things as before. Perhaps now is the time to review your finances and possibly save some tax without too much strain. Here are a few tips for the year ahead.
• Utilise Spouse’s Basic Rate Tax Band
It is not uncommon for one spouse to be paying higher rates of tax, this could be up to 50%, whilst the other’s income remains well below the basic rate tax band. In this common situation the spouse suffering tax at the higher rate should consider transferring some of their income producing assets, for example shares, to the other in order to utilise their basic rate tax band.
• Utilise Spouse’s Capital Gains Tax Annual Exemption
Firstly, it is important to note that married couples can transfer assets between themselves without many adverse capital gains tax consequences. This is particularly useful when considering Capital Gains Tax where the difference in the rate for non-business assets between higher rate tax payers and basic rate taxpayers is 10%.
Furthermore, every taxpayer has a Capital Gains Tax annual exemption, an amount of assets they can dispose of without incurring tax, which currently stands at £10,600 and this has been frozen for the next tax year also. Once again, married couples should consider either transferring assets to their spouse or holding the assets jointly prior to disposal in order to utilise both the lower rate of tax and their spouse’s annual exemption.
• Inheritance Tax
Inheritance Tax bites at 40% on individual estates over £325,000 and the Government has confirmed that this band will remain the same until April 2015, when it will only increase in line with the Consumer Prices Index. However, so often people suffer this tax when, with some planning, their liability could have been reduced significantly. Annual exemptions available for Inheritance Tax purposes amount to £3,000 per year. If you utilised this allowance every year by gifting this amount to your family your Inheritance Tax liability would be reduced by £1,200. Furthermore, if you didn’t use last year’s allowance you can use that as well doubling the saving.
• Pension Payments
Many pension payments made by individuals are paid ‘net’ of tax. As a result, tax relief is obtained when they are paid. However, higher rate tax payers are also due further relief on such pension payments. So perhaps now is the time to seek some professional advice and top up your pension, saving tax along the way.
• File Tax Returns on Time
31 January is a very important date in the tax year as it is the deadline for submitting your self-assessment tax return. So if you’ve been sent a notification to complete a self-assessment don’t miss the deadline, it will cost you £100.
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