There are various ways in which an individual can help reduce their tax liability and whilst they are generally considered more at this point in the tax year, can actually be considered at any time during the tax year. Thought should be given to the following areas –

Personal allowance –

Each person has his or her own personal allowance, so ensure this is utilised to its full potential. Do not forget that where the income of one spouse/civil partner is low and the relevant criteria is met, it is possible to transfer £1,190 (for 2018/19) of the personal allowance to your spouse/civil partner.

Pension contributions –

Contributions of up to £3,600 gross per year can be made by individuals with no taxable income. Those with income can make larger contributions and potentially gain further tax relief but advice should be sought in relation to net relevant earnings and the annual allowance otherwise the contributions may not result in the desired effect.

Charitable donations –

Cash donations to (mainly) UK registered charities extend the basic rate tax band which in turn increases the amount of income that can be taxed at the basic rate. However, if you have not paid enough tax to cover the tax that the Charity would claim on your donation you would be required to meet the shortfall.

Tax efficient investments –

Tax favourable investments such as Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), Social Investment Tax Relief (SITR) and Venture Capital Trusts (VCTs) should be considered. Each has its own rules and annual limits and, where the criteria is met, income tax relief is available ranging from 30% to 50%. Investment returns from Individual Savings Accounts (ISAs) are not subject to income or capital gains tax. There are different types of ISAs that have their own rules.

Capital gains tax –

Unused annual exemption cannot be carried forward or back to a different tax year and if unused is lost. Each spouse/civil partner is entitled to the exemption so gifts between them prior to the disposal of assets can be effective for tax purposes.

Inheritance Tax –

There is a £3,000 annual exemption each tax year that an individual can use to make a gift without any IHT implications. If the previous tax year’s exemption was not used it can also be used but only in the following year. Other reliefs and exemptions are available.

Remember this is only a brief overview and full advice must be sought before any action is taken!

If you wish advice on any of the points made in this post please feel free to contact us using the form below: