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How to round off the fiscal year on a high note

A fiscal year is a 12 month financial period during which a company or individual budgets their finances. The fiscal year may not be the same as a calendar year, but often runs 6th April to 5th April the following year. For those who are individual taxpayers, the fiscal year runs to 5th April, while for Corporation Tax it runs from 1st April to 31st March. The fiscal year end is also the time when you need to plan for the next stretch and settle the old one.

Coming to the end

As you approach the end of the financial year, this is a good time to make sure that you have maximised all tax allowances and reliefs. For those who pay tax at the higher rate of 40 per cent or the additional rate of tax at 45 per cent, end of year planning is vital.

Income tax

Planning ahead will ensure that you pay less tax by the end of the next fiscal year, and this is often the case with income tax. If you are married to a person who is a lower rate taxpayer or who has an income below the level of personal allowances, consider transferring some income or assets that earn income to them so that less tax is paid. This is especially beneficial if you are a higher rate taxpayer. You could also pay the maximum annual amount of pension contributions so that you reduce your salary below the threshold. This is particularly useful if you earn more than £100,000 and pay the additional rate of tax. You will attract tax relief on the contributions at the same rate. If your income is between £100,000 and £118,000, you could make donations to charity so that you will reduce your income while attracting tax relief on the donations.

Investments

An Individual Savings Account doesn’t attract tax on the interest you earn. Make sure that you have saved the maximum amount in the ISA before the year end. You can also benefit by maximising the tax concessions available through Enterprise Investment Schemes and Venture Capital Trusts.

Inheritance tax

If an estate has a value exceeding £325,000, inheritance tax at 40 per cent will be paid. Lifetime gifts can be made to individuals to reduce the estate. Individuals can receive up to £3,000 a year without any tax implications, while you can give your children up to £5,000 as a wedding gift. Grandchildren may be given £2,500 each year without any tax implication. If a financial gift is given at least seven years prior to death, they will be exempt from tax.

Pensions

Although the amount of pension contributions that will attract tax relief has reduced, it is still a valuable investment that can reduce income while attracting tax relief. The amount of contribution eligible for tax relief, since 6th April this year, is £40,000.

A little time taken towards the fiscal year end can ensure that you maximise your income for the last year and plan ahead for the new financial calendar.

Posted by Mark
April 29, 2014
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