Here we consider some key strategies to help minimise your personal tax liability for 2014/15.
Income tax/ personal allowances
If your spouse or partner has little or no income, consider transferring income (or income-producing assets) so they can make full use of their personal allowance during the 2014/15 tax year. However, take care to avoid falling foul of the settlements legislation governing ‘income shifting’, and consider any legal consequences.
Meanwhile, those with an income over £100,000 who are paying tax at 40 per cent should be mindful of the ‘hidden top rate’ of income tax: personal allowances are clawed back by £1 for every £2 that adjusted net income exceeds £100,000, equating to an effective 60 per cent rate on up to £18,880 of your income!
As confirmed in 2013, from April 2015 eligible spouses and civil partners will be able to transfer £1,000 of their personal allowance to their partner, where neither pays tax at the higher or additional rate. With care, it may be possible to reduce your taxable income and retain your allowances, for example by increasing payments into a pension or delaying income into the following tax year.
A registered pension scheme can be a tax-efficient way of saving for your retirement, as contributions attract tax relief at an individual’s marginal rate of tax (in some cases 60%), subject to certain limits.
Pension contributions need to be made by April 5 to be applied against 2014/15 income. Relief is available for tax on annual contributions, limited to the greater of £3,600 (gross) or the amount of UK relevant earnings, subject to the annual allowance of £40,000.
Unused relief may be carried forward where premiums paid in the preceding three years are less than the annual allowance. However, restrictions apply and the rules are complex, so please take advice before doing this as contributions exceeding these limits may result in a tax charge.
For further information or advice, contact me at Rennie Welch LLP, firstname.lastname@example.org or on 01573 224391.