Use Available Allowances Now as End of Tax Year Approaches

The arrival of spring also brings the forthcoming end of the 2016/17 tax year and with it a seasonal bounty of tax planning opportunities.

It is a good time for individuals, businesses and companies to spring clean their financial position and make sure they are making the most of available tax allowances.

Rural Scene

Peter Harker, Director at UK top 20 Chartered Accountants Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group, says:

Individual taxpayers should consider whether they are making the most of their annual tax allowances such as ISA contributions, annual CGT exemption and pension annual allowance. At this time it can be particularly important to assess your likely total taxable income levels for the year and, if your income falls just above a rate threshold, it might be worth mitigating the effect of this through pension contributions or gift aid.

The following five opportunities may also present valuable, tax-saving opportunities at this time of year.

1. Owners of companies can control their income levels by considering the timing of payment of dividends. Owner-managed companies can make use of the new £5,000 dividend allowance, that came into effect on 6 April 2016, each year through the payment of dividends.

2. One of the most valuable income/corporation tax reliefs for rural businesses is the Annual Investment Allowance (AIA) that allows up to 100% tax relief to be given on the purchase of plant or machinery up to a maximum of £200k. Any qualifying expenditure over this amount should still be able to benefit from writing down allowances at 18 per cent or 8 per cent depending on the nature of the asset. Where the purchase of a major new item of machinery such as a tractor or combine is being considered then the timing of this purchase can be key to make sure that the AIA and capital allowances are maximised. One pitfall for the unwary is that when machinery is bought under a hire purchase agreement capital allowances can only be claimed once the machinery has been used in the business.

3. The disposal of plant and machinery can create a taxable profit so if such a transaction is planned near the tax year end it is worth carefully considering which tax year it would be most beneficial to have this extra tax charge fall into.

4. From 6 April 2017 the way in which tax relief is given on interest charged on loans for residential property is changing for individuals and trustees. It will no longer be possible to get tax relief for interest at a taxpayer’s marginal rate, instead this relief will be restricted. The restriction is being phased in over the next four tax years, meaning by 2020/21 relief will only be available at the basic rate of tax. For rural businesses that have borrowings against residential property it might be worth considering whether this borrowing can be repaid or allocated against non-residential assets. Where a rural business has borrowings used for both residential and non-residential purposes it will be necessary to calculate an apportionment of the interest between the two activities on a fair and reasonable basis.

5. 2017 year sees the final Spring Budget as it has been announced that this one coming will be the last (for now) and what has been the Autumn Statement will become the new main Budget. It may be the last of its kind, but nevertheless there are likely to be tax changes announced in it which create both opportunities and additional burdens for taxpayers and time will, as ever, be short to act on these before the year end.

Saffery Champness

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