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You are here: Home Finance & Business Tax Tax planning tips for UK citizens
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21/03/2012Tax planning tips for UK citizens

Tax planning tips for UK citizens With the end of the 2011/12 tax year in sight, now is a sensible time to consider whether you need to be taking any action to help minimise your UK tax exposure.

Dean Power, Assistant Tax Manager at The Fry Group offers a number of points that you may wish to consider in your tax planning.


Charitable donations

You can save tax and HMRC will gross up donations made to charity.

Potential action points:

  • Higher rate taxpayers (those earning over GBP 42,475) can extend their basic band of tax by the amount of grossed up donations, thereby paying more tax at basic rate than higher rate.
  • If you are a non-taxpayer or do not pay basic rate tax, charitable donations should not be made under the Gift Aid scheme as this would generate a tax liability.
  • Gift Aid relief can also be claimed on donations made to charities based in the EEA.

Pension planning

This is an area where the legislation has been changed quite dramatically over the past few years. The annual allowance (the maximum amount of pension saving you can have each year that benefits from tax relief) was reduced to GBP 50,000 from April 2011. This is a complex area and financial planners can provide further assistance.

Potential action points:
  • It is possible for some individuals to carry forward unused annual allowance from 2008/09. This would be lost if not used by 6 April 2012.
  • Stakeholder pension schemes can be established for non-earning spouses/civil partners andchildren. HMRC will gross up the maximum net payment of GBP 2,880 to GBP 3,600 each year.
  • There have been changes to the state pension retirement age and the number of qualifying years of contributions needed to receive a full state pension. It would be sensible for you to check your position.
  • There is speculation that the UK Budget set for 21 March 2012 could restrict tax relief to 20 percent on pension contributions irrespective of an individuals tax rate. Action sooner rather than later could be sensible.
Additional higher rate and loss of personal allowance
If your income for the current 2011/12 tax year exceeds GBP 150,000, you will be liable to the additional
higher rate of tax of 50 percent. If your income is between GBP 100,000 and GBP 114,950, your personal allowance
is restricted and creates an effective rate of tax of 60 percent on income within this range.

Potential action points:
  • Reduce your taxable income by making pension contributions or charitable donations.
  • Review spreading your assets more evenly between yourself and your spouse/civil partner.
  • If possible, look to defer income into the 2012/13 tax year.
  • Consider if your investments should be generating capital growth rather than income.

Potential action points:
  • Make use of your annual Capital Gains Tax exemption (GBP 10,600 for 2011/12) which cannot be carried forward.
  • Consider realising any accrued losses from assets or investments. Losses are offset against capital gains arising in the same year, with any excess losses then being carried forward.
  • Review whether it would be sensible to transfer assets to your spouse/civil partner if they are not utilising their annual exemption or would pay Capital Gains Tax at a lower rate on subsequent disposal.
  • The rate of tax applied to capital gains is dependant upon your level of income. Therefore pension contributions could not only reduce your income tax rate, but also the rate of capital gains.
  • If selling property, consider if the disposal is fully liable to Capital Gains Tax or if any form of Principal Private Residence relief is due.

Potential action points:
  • Remember there are annual reliefs that apply to gifts. Each individual can make gifts of up to GBP 3,000 per tax year. If no gifts were made in the previous year, the exemption can be rolled forward for one year only.
  • Separately, gifts up to GBP 250 can be to any number of separate persons.
  • Exempt gifts in consideration of marriage/civil partnership - GBP 5,000 can be made by parents of either party, GBP 2,500 by a grandparent or by one party to the marriage/civil partnership to theother. GBP 1,000 by anyone else. Any gifts made, in any circumstance, should be documented.
  • If larger lifetime gifts are made, these will become exempt if you survive seven years from the date of transfer.
  • Review any existing wills to make sure they still accurately reflect your wishes.
  • Making use of both spouses nil rate bands is now much easier, and generally no longer needs a Trust. Whilst it is important to retain certain information from the death of the first to die, no immediate action is needed, unless your existing Will uses up the Nil Rate Band via a legacy.

Potential action points:
  • Make full use of your ISA entitlement if you are able to make such payments. For 2011/12 the overall annual contribution limit is GBP 10,680, of which no more than GBP 5,340 can go into cash. ISA's are free of income and capital gains tax.
  • Effective from November 2011, Junior ISA's are available to save for children who do not have a child trust fund. Withdrawals are restricted until age 18.
  • Significant tax relief can be obtained by investing in either an Enterprise Investment Scheme(EIS) or Venture Capital Trusts (VCT). An investment in an EIS of up to GBP 500,000 can secure income tax relief of 30 percent as well as deferring capital gains. VCT investment attracts tax relief at 30 percent up to GBP 200,000, although there is no capital gain deferral available.

Whilst the proposed Statutory Residence Test has been postponed until April 2013, those living overseas should still carefully review their circumstances, as well as visits and connections to the UK.

If you are looking at leaving or returning to the UK, do seek specialist advice beforehand to ensure that you take the appropriate action.

For those who are UK resident but non-domiciled, continue to carefully consider when and from where any remittances are made to the UK. Also remember to keep an eye on the calendar in relation to the ‘deemed domicile' rules for Inheritance Tax.


Furnished Holiday Lets
The qualifying criteria for a property to be treated as a furnished holiday let changes from 6 April 2012.
  • Total periods of ‘longer term occupation' must not exceed 155 days,
  • The property must be available for letting for 210 days,
  • The property must be actually let for at least 105 days
Changes to the taxation of non-domiciled persons
From April 2012, non-doms who have been UK resident for at least 12 of the previous 14 tax years and
who elect to be taxed on the remittance basis will be charged an increased rate of GBP 50,000 per annum.

Reduced rate of IHT for charitable legacies

A new, lower rate of inheritance tax (IHT) at 36 percent will apply for deaths on or after 6 April 2012, where
the individual leaves a minimum of 10 percent of the taxable estate (i.e. the value of the estate after
deducting reliefs and exemptions) to charity on their death.

Seed Enterprise Investment Scheme (SEIS)
A new tax advantaged venture capital scheme. Qualifying investments made on or after 6 April 2012
(and before 6 April 2017) will attract income tax relief at 50 percent on the lower of GBP 100,000 and the amount
of qualifying investments made during the tax year, regardless of the individual's marginal rate of
income tax. These will also offer a complete capital gains tax exemption on gains made in 2012/13
which are re-invested in the same year under the SEIS scheme.

Penalties for late filing of tax returns
As a general reminder, penalties for late submission of tax returns will accrue even if there is no tax to

KEY DATES 2012/13
  • 5 April 2012 - End of 2011/12 tax year
  • 31 July 2012 - 2011/12 second payment on account
  • 31 October 2012 - Last day for filing paper copy of 2011/12 tax return
  • 31 January 2013 - Last day for filing electronic copy of 2011/12 tax return
  • 31 January 2013 - Balancing payment of 2011/12 tax and first payment on account for 2012/13

If you are an individual who does not have income from property or self-employment then paperwork should be retained for one year from the end of the tax return deadline. For example, the 2010/11 tax
return information in these circumstances should be kept until 31 January 2013. If letting a property, then information should be kept for five years after the end of the tax return deadline. For example, the 2010/11 tax return information in these circumstances should be kept until 31 January 2017.

HMRC continue to take an active approach in ensuring that the correct amounts of tax are paid by individuals. Recently they have indicated that they will be concentrating on those who fail to complete tax returns and who are liable to tax at higher rates.

The past 12 months have also seen the following HMRC developments:

  • Establishment of a specialist High Net Worth Unit
  • A new Offshore Coordination Unit
  • Concentrated campaigns on tax disclosure for those who are electricians, plumbers, private tutors and those ‘trading' online using e-marketplaces to buy and sell goods.
  • A tax agreement with Switzerland which will result in taxing all Swiss based accounts by 2013
  • New penalties for offshore non-compliance
  • The extension of the Liechtenstein Disclosure Facility which offers a reduced rate of penalty for those with undeclared liabilities.

Dean Power, Assistant Tax Manager, The Fry Group
Got questions? Contact Dean via our Ask the Expert channel (in the Tax category).

The levels and basis of tax are subject to change without notice.

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