Tax Planning For The New And Old Tax Year
Although we are in the new Tax Year, there are certain actions that can be taken to reduce tax for the previous tax year.
We have set down some action points that you may wish to consider.
We know that the basic rate of tax increases to the higher rate of tax on taxable income above £31,865 and 45% when taxable income exceeds £150,000. A higher marginal tax rate may
be payable between £100,000 and £120,000 when the personal allowance is
gradually withdrawn giving an effective marginal rate of 60% in this band for non-savings and savings income.
Contributions to a pension scheme and/or, making charitable donations could be set against the previous year’s income if a carry back claim is made to take your taxable income to below £100,000 to avoid the 60% marginal rate of tax.
Tax-Free Savings For Low Earners
People with a total income less than £15,600 will qualify for tax-free interest in this new tax year. Most people will qualify for tax-free savings for the next tax year from 6th April 2016.
The reason is apart from the £10,600 personal allowance; you can earn up to £5,000 on saving interest tax-free as well.
You will need to inform your bank or building society and ask them to not tax the interest paid. Alternatively you will need to complete form R85 and submit this to your bank.
Pension Freedom And Payments To HMRC
The Government has given the over–55’s access to their pension funds. The issue we would like to bring forward is that upon withdrawals, people will have to supply a P45 so that the correct amount of tax is deducted on their withdrawals.
P45’s, however, are only issued when a person leaves his/her employment or when a pension is paid out in full. So those still in employment or who retired before the start of the tax year will be unable to show a valid P45 to have the correct amount of tax deducted on their withdrawals and will have to pay an “emergency “ levy to HMRC.
The result will be that most people will have to overpay tax and pay rates as high as 45% even on relatively small withdrawals and then negotiate a refund if there was an overpayment with HMRC.
HMRC claims these overpayments will be refunded in 30 days but it has been known that HMRC takes that long just to open letters.