Year end tax planning

The UK national debt is growing at over £5,000 a second and tax revenues are the only way for the government to stop this growing and pay it off.

Starting April 2016 the government is committed to denying people basic tax reliefs. This will divert personal and business cashflow into the Treasury.

We have highlighted three issues which will have a significant impact:

• Private landlords
• Higher rate tax payers
• Owners of small limited companies

Private landlords
Owners of furnished, residential property will pay more tax because the 10% wear and tear allowance is replaced by a more restrictive replacement cost relief.

Stamp duty is also going up for landlords and next year sees tax relief on loan interest being restricted to the basic rate. This last change could seriously impact the ability of landlords with high debt to property values to maintain their property holdings.

Landlords considering buying a new property should think about bringing the completion date forward to before 1 April 2016.

If you need to replace furniture in a rented property then wait until after 5 April 2016. In this way you can claim for the full wear and tear allowance 2015-16 and next tax year you can claim the new replacement furniture relief.

Higher rate taxpayers
The governments focus here is the reduction of tax relief that can be claimed for pension contributions.

The law is already in place to reduce the amount of pension relief for additional rate (45%) tax payers to just £10,000 a year. Now, there is speculation that 40% or 45% tax relief will be scrapped altogether and a lower threshold set.

Consider maximising your pension contributions before the end of the tax year.

Limited company owners
From 6 April 2016, the first £5,000 of dividend income is tax free, but any additional dividends, will be taxed at:

• 7.5% if the dividends form part of your basic rate band
• 32.5% if the dividend forms part of your higher rate band, and
• 38.1% if the dividend forms part of your additional rate band.

If you use dividends to take out profits from your company, consider stripping out any available company reserves to 5 April 2016 as dividends.

If this can be done without pushing your overall income into the higher rates you will have no additional income tax to pay. Even if the distribution pushes you into the higher rates there may still be overall savings to be made.