Back to the future

The best way to avoid end-of-year panic is to think about reverse planning.

Planning your tax year in reverse sounds like a strange idea, but that’s exactly what I advise my clients to do if they want to avoid unnecessary stress. Very often, they’re trying to do things at the last minute, when they really should have thought about them a lot earlier e.g. making best use of tax allowances, reliefs and exemptions.

Take married couples, for example. On 6^th April, new rules came into force that allow one spouse or civil partner to transfer 10% of their personal allowance to their other half, providing that neither of them pays tax above the basic rate. It’s a good opportunity in a situation where one partner has a low income and would otherwise have wasted their allowances. It does involve contacting HMRC immediately though and asking for the allowance to be transferred and tax codes to be updated.

And what about the child benefit charge? When one member of the family has an ‘adjusted net income’ of £50,000 or more, the benefit starts to reduce. And once the income exceeds £60,000, you lose it altogether. That could mean a gap of up to £1,800 a year if you have two kids. But if you think ahead and plan, the limits can be extended – through personal pension contributions, for instance, or gift-aid donations.

There’s another planning opportunity worth mentioning too. In April, the starting-rate tax band increased to £5,000 and the rate went down to zero. If you are a married couple or civil partners and you have relatively low pensions or earnings, but a higher amount of investment income, you need to consider your options. You could for example receive pensions to the value of around £10,600 and another £5,000 in gross interest without paying tax.

If you talk to your accountant at the earliest possible stage, you’re always better prepared to take advantage of opportunities. So don’t end up with a last-minute scramble.