Tax-saving ideas to implement before 6 April 2017
1. MARRIAGE ALLOWANCE
Spouses or civil partners (referred to here collectively as spouses) enjoy certain advantages when it comes to tax planning.
The Marriage Allowance is one of the most under-claimed tax reliefs available. It is not granted automatically, and HMRC says that nearly 3 million eligible couples fail to claim it. Where one spouse has no taxable income, they may transfer up to 10% of their personal allowance to their spouse if the latter pays tax at the basic rate only. The personal allowance for 2016/17 is £11,000, so this claim can save them tax of up to £220.
2. INCOME ALLOWANCES
From 6 April 2016 a personal savings allowance – effectively a nil rate income tax band on savings income such as bank or building society interest – is available to each individual taxpayer. The allowance amounts to £1,000 per year for basic rate taxpayers or £500 for those liable at the higher rate. Additional rate taxpayers get no personal savings allowance.
Also from 6 April 2016, a tax-free dividend allowance of £5,000 is available to each individual taxpayer. Dividend income above that amount is treated as their top slice of income and taxed at 7.5%, 32.5% or 38.1% within their basic, higher and additional rate bands respectively
3. SALARY V DIVIDENDS
The new dividend allowance and the dividend tax rates that apply from 6 April 2016 have fundamentally altered the relative merits of salary and dividends as a means of extracting profits from companies. While many companies will have addressed this already, the period up to 5 April may be the final chance to get it right for 2016/17.
You should try to ensure that you invest the maximum amount in ISAs by 5 April 2017. Withdrawal of funds from an ISA does not involve the loss of tax relief already given. If an ISA is designated as “flexible”, you can withdraw and replace funds during the same tax year without reducing you current year’s allowance. However, the terms of such an ISA may include loss of interest or other penalties on withdrawals.
IHT is levied on transfers of value. Small gifts, where they amount to less than £250 to the same person in a tax year, are exempt from IHT. In addition, gifts totalling £3,000 in a tax year are exempt. If all or part of this latter exemption remains unused, the balance can be carried forward only one year but used only after the exemption for that later year.