However, it is here whether we like it or not and we need to plan accordingly. If you are due a bonus and have scope to be paid before the tax year end it will save tax for both you and your employer because the additional National Insurance contribution applies to employer contributions as well. Why not have a chat with your boss? If you own your own company, consider taking a dividend this tax year rather than next on the same basis.
5) Cash in investment bonds now
Single premium investment policies, often called bonds, have become very attractive as an investment because of the ability to draw 5pc each year and have it treated as part redemption of your original investment.
This can represent efficient tax planning but this is a deferral of income tax, not a tax-free return. It may not feel like it now but over the last 5 years a portfolio of FTSE 100 shares with dividends reinvested have returned 7pc a year on average. Over 20 years average returns have been between 4pc and 11pc a year so you should have accumulated some decent profits.
Investment bonds are usually issued in segments. If you cash in a complete segment, higher-rate income tax on the accumulated profits can apply, calculated on a top slicing basis over the number of complete years held. With more of us being forced into higher tax rates it may pay you to cash in some segments before the end of this tax year.
Tax Hacks is written by Mike Warburton, previously a tax director with accountants Grant Thornton, and is published twice a month on Tuesdays. You can email Mike on firstname.lastname@example.org