Jam today, or jam tomorrow?

Income is “cut up” into fiscal years to decide whether you are a higher rate taxpayer or not. If you have £70,000 of income in one year and none in the next, you will pay over 50% more income tax on it than if you received £35,000 each year - £18,700 instead of £5,700. If your income might fluctuate like this, it is worth looking at ways to advance or delay the charge in order to even out the tax rates.

Of course, if the tax charge is going to be the same in either year, then most people would rather pay the tax later – if you receive some types of income on 6 April rather than 5 April, you may pay the tax on it a whole year later.

Income that can be moved from year to year easily includes:

salary (although PAYE means that the payment of the tax cannot be delayed for a whole year);
dividends from family companies;
distributions from discretionary trusts;
tax charges on cashing in some life insurance policies.

It is also possible to claim reliefs for some types of payment in particular years to make sure that they reduce income taxable at the highest rate. These include pension contributions and charitable donations.

Actionpoint:

CONSIDER MOVING INCOME OR RELIEFS AROUND 5 APRIL

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