As we approach the tax year end and assess options to reduce corporation tax and personal tax bills, we wanted to share a few ideas that may help you and your business make the most of the planning options available.

Business Planning

  • With a maximum income tax rate of 45% on salary and bonuses and maximum dividend tax of 39.35% now maybe the time to make use of company funded pension contributions to lower your corporation tax bill and move money out of the business tax efficiently. Company funded pension contributions are received without tax into your pension. Establish if large contributions could be made using unused annual allowances carried forward from previous years.

  • Directors / Senior employees could consider pooling pension funds to tax efficiently purchase an office, warehouse, or other commercial property. Rent payable to the pension (the pension effectively becomes the landlord) is a deductible expense for corporation tax and is received free of tax into the pension. Any growth in the value of the property is protected from capital gains tax and assets held in pensions are also usually exempt from inheritance tax.

  • Invest cash within the business that is surplus to your cash flow requirements in a corporate investment or savings account. This will get the money working until you need it in the future, particularly with inflation currently eating at the value of cash.

Personal Planning

  • Use ISA allowances to grow a tax efficient nest egg outside the business. You have until 5th April to take advantage of your £20,000 ISA allowance for this year. ISA investments are capital gains tax and income tax free and can be held in cash or stocks and shares to suit you.

  • If your total income for this tax year exceeds £100,000 there may be scope to make personally funded pension contributions to preserve your personal allowance.  Income over £100,000 begins to taper away your personal allowance at a rate of £1 for every £2 you earn above this  threshold, exposing those caught to an effective tax rate of 60% on part of their income.

  • Consider transferring income producing assets or assets you intend to sell, to your spouse to use their allowances and reduce your tax liability. Particularly with capital gains tax allowances more than halving next tax year and again the year after.  In order to qualify the gift must be genuine and outright and the transferred assets must remain with the new owner and not be returned to original owner after encashment.

  • Sophisticated investors with big personal tax bills who have already maximised their pension funding, could look at investing in Venture Capital Trusts (VCTs) or other tax advantaged investments to benefit from 30% upfront income tax relief on the value of the investment.

  • If you are selling all or part of your business this year, consider re-investing share sale proceeds in a Business Relief (BR) qualifying investment portfolio to maintain the IHT free status of the capital.

For further information on anything mentioned above, please do not hesitate to contact WBW Chartered Financial Planners by telephone on 01626 242500 or email enquiries@wbwcfp.co.uk.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. The Financial Conduct Authority does not regulate taxation advice, estate planning, inheritance tax planning, wills or trusts