Year end tax planning guide for individuals and businesses

Many accountants will be urging business people to start planning now to make year-end tax savings. With the Budget date set for 12th March, together with the looking Finance Bill, PKF Accountants suggests starting the planning process right away.

Lisa Macpherson, National Director of Tax at PKF says, “This spring is probably the most important ever in terms of getting your tax affairs in order and arranging your finances to save tax.

“This is a very busy year because many changes to long-established tax rules take effect from 6 April 2008. There are many planning opportunities available in the run up the end of the tax year but it will pay to get things moving now, even if you have to wait until after the Budget before completing the arrangements.”

Some of the most important issues that need to be considered by individuals and may need to be acted upon in the next few weeks are:

Non-doms should review their overseas arrangements now – individuals who are UK resident but non-domiciled face substantial changes to the tax treatment of their foreign income and gains from 6 April 2008. Some of these may bring income and gains arising in past years within the UK tax net.

Check your visits - individuals visiting the UK for short periods should check their visiting pattern carefully. HMRC has been tightening up on its approach to visits and new rules from 6 April will mean that days of arrival and departure must be counted.

Private investors – making the most of the changes in the CGT rules that take effect from 6 April could mean selling assets now, transferring them to a spouse or delaying a sale until the new tax year. What is most tax-efficient for each investor will depend on your investments and circumstances, so starting the number crunching as early as possible is vital.

Trusts – major changes to the way trusts are taxed were announced in 2006 but the transitional period, during which settlors and trustees can change current arrangements to ensure they remain tax-efficient, ends on 5 April.

Inheritance tax planning before the Budget – as the Government has made a major concession by introducing the transferable nil-rate band in the Pre-Budget Report, it is highly likely that it will ‘take with the other hand’ in the Budget. Therefore, individuals considering plans to reduce their family’s inheritance tax bill should try to put them in place before the Budget on the 12 March to make sure that current tax reliefs can be used.

Transfer of income producing assets – spouses and civil partners can save tax by transferring income producing assets between them to ensure that tax allowances and rate bands are used effectively. With the Government taking increasing interest in family tax planning (see income of business owners above), it may be wise to make any relevant transfers of assets before the Budget.

Pension contributions - the option to make large personal pension contributions is particularly important this year as, with the reduction in the basic rate of income tax from 6 April 2008 onwards, amounts going into your fund will only be topped up with a 20% tax credit ― rather than the 22% addition to contributions the Government makes now.

Lisa Macpherson, National Director of Tax at PKF, told us:

“Business owners will probably be well aware of the potential capital gains tax issues they face but that is not the only issue they should consider before April”. For business owners, the urgent issues to consider are:

Capital gains of business owners – most business owners are aware that the 10% effective rate of tax on gains from selling your business will rise to 18% on 6 April unless the gain is under £1m and they meet the tests for the new Entrepreneurs relief. However, not all will realise that there are a number of ways to “bank” the 10% rate by making a disposal even if you cannot at present sell your business outright.

Income of family company owners – those owning their own family company will have to consider the new “income shifting rules” where other family members work in the business or receive dividends. If your business is likely to be affected, extracting profits by way of dividends before 6 April is your last chance to allocate the profits around the family tax-efficiently.

Business investment – business owners considering purchasing new plant or machinery should assess whether advancing or delaying expenditure will earn them faster tax relief as many changes to the capital allowances regime take effect from April (1 April for companies, 6 April for unincorporated businesses).

Lisa continues, “I cannot remember a time when so many changes to the tax system occurred at the turn of a tax year and the PKF planner is a useful reminder of both the planning opportunities and the compliance obligations. Anyone who is unsure of the options available should seek advice now as they may save a significant amount of money.”