Its always good to think about personal tax planning, whilst there is still time to do something about it!
Individual Savings Accounts
Use your ISA allowance each year. For 14/15, each person can invest £15,000 (£15,000 in cash) in an ISA. Over a number of years, this builds up into a very tidy sum of money generating tax free returns – even better if the returns are re-invested within the ISA wrapper! You can invest in cash, insurance, stocks and shares.
If your total taxable income is below the annual personal tax-free allowance, then make sure that you register with your bank or building society to receive your interest tax-free by completing and giving them an R85 form.
Claim Your Tax Credits
A large number of people are entitle to either child tax credit or working tax credit (or both). Eligibility can easily be checked by going to the HMRC website. Tax credits can be worth thousands of pounds each year for low income families. Even if your income is over the threshold and you aren’t currently entitled to tax credits, you should make a “protective” claim, resulting in zero tax credits, just in case your actual income turns out less than you expect in the coming year – this is because you can’t back-date new tax credit claims by more than a month, but an existing claim can be increased from zero for the entire period, several months earlier!
Registering Your Rental Loss
If you make a loss on renting out a property, you should report it to HMRC even if you don’t have to according to HMRC rules. Without reporting rental losses, you are losing out on being able to set these losses against future income from property, meaning you pay more tax that you needed to. If you register losses each year, they’re there for you to set against future profits.
Utilise Rent A Room Relief
If you rent out a room to a lodger within your own home, you can claim rent-a-room relief of £4,250 p.a. This means that you don’t need to declare the actual income and can avoid the complicated matter of working out the proportions of household bills that you can claim for against the income.
Keeping Child Benefit Entitlement
If you or your partner have total taxable income of over £50,000, you lose child benefits, whereas if each of you earn just under, say £49,000 each, you keep them.
So, if part of your total income comprises property or investment income, such as buy to let or dividends, then consider giving some of your investments to your partner, to reduce your taxable income and increase your partner’s income, hopefully so that you both have incomes under £50,000!
NB transfers of assets to a spouse or civil partner have no tax consequences upon the transfer, but beware, there is no such exemption for transfers between co-habitees who aren’t married or in civil partnerships!
Alternatively, consider making a personal pension contribution which reduces your taxable income so you could bring your income down below the magical £50,000 threshold and keep all your child benefit!
Capital Gains Tax
Every individual has an annual exempt amount for CGT, currently, £11,000 p.a. This means the first £11,000 of capital gains in any tax year is tax free. This is a “use it or lose it” allowance, so if you don’t use it, it’s lost forever. So, if you have any assets, such as shares or property, that you can sell or partially sell, it may be worth doing so if it triggers a gain of £11,000 or less. If, say, you had a share portfolio with a capital gain of £50,000, you’d pay around £11,000 in capital gains tax if you sold all the shares in the same year, but if you sold one fifth of the shares in each of the next five tax years, you’d pay no CGT – a saving of £11,000 just by timing your sales more carefully. Of course, this ignores the potential rises or falls in the value of your portfolio so, as always, don’t let the tax tail wag the dog!