High income earners have until 5 April 2013 to review their tax position for 2012-13. In most cases action will need to be taken prior to this date.
If you normally receive bonuses this month or a dividend from your company you should estimate your earnings for the next tax year, 2013-14, and if next year’s earnings are likely to be lower than the current year’s earnings consider deferring the voting of a dividend or bonus until after 5 April 2013. In this way you can defer any liability on dividends and possibly reduce your overall tax bill. If you are currently paying tax at the 50% rate then deferring income to 2013-14 makes sense as the 50% rate reduces to 45%.
Gift Aid Payments
Any Gift Aid payments you make in 2012-13 will effectively increase the amount of income you can earn at basic rate. For a higher rate tax payer (especially those with earnings between £100,000 to £116,210) this can significantly reduce the net cash cost of your donation. This strategy is particularly useful as the deadline for making gift aid payments for 2012-13 is the date you file your 2013 Self Assessment tax return – this is because such gift aid payments can be ‘carried back’ a year.
Furnished Holiday Let Property
If part of your income for 2012-13 arises from the letting of furnished holiday let property, it may be possible to reduce or eliminate this income by taking advantage of the Annual Investment Allowance. This type of property letting is considered to be a trade, so qualifying expenditure on refitting or refurbishing your property could be brought forward to this month and used to eliminate higher rate tax.
Have you maximised the amount you can pay into qualifying pension schemes this year? Although basic rate tax relief is generally deducted before you pay your contributions you can claim for the higher rate tax element on your tax return. Talk to your pension advisor about a possible top up.
Hopefully you will already have given serious consideration to these and other ideas to minimise your tax position for the current tax year. You still have a few weeks to fine tune your planning. As soon as midnight passes on 5 April 2013 these options, apart from the gift aid strategy, will cease to be effective. The clock is ticking.