Tax Year end fast approaching – ponder the opportunities
MARCH 3RD, 2010 By DAVID
With a General Election fast approaching, the economy in a mess and no credible plan in place to tackle the budget deficit for fear of losing votes, I thought that now would be an appropriate time to mention some tax year end planning opportunities that you may wish to consider.
Individual Savings Accounts (ISAs)
The tax advantages, wide investment choice and flexibility of ISAs make them very suitable for building up capital and/or generating income. The maximum that can be invested each year is £7,200 but since 6 October 2009, those aged 50 and over (or who will be 50 on or before 5 April 2010) can invest up to £10,200.
If you have not paid into an ISA in the current tax year or have only partially funded your ISA, then you may wish to consider paying the maximum amount into an ISA (provided you have the means to do so), as unused allowances cannot be carried forward.
Pensions
Despite the changes announced in the 2009 Budget and 2009 Pre-Budget Report pensions still remain a tax efficient way to save for retirement (especially for those not caught by the £130,000 relevant income threshold).
Higher rate taxpayers whose total relevant income is greater than the income threshold of £130,000 (in the current tax year or in either of the previous two tax years) should seek independent financial advice to ensure that any future contributions they make do not fall foul of the anti-forestalling legislation.
Please note that if you are a higher rate taxpayer and you pay into a stakeholder pension, personal pension or self invested personal pension, then it is your responsibility to claim the higher rate tax relief from HM Revenue & Customs. It is possible to claim higher rate tax relief on contributions made in previous tax years but you need to be quick, as from 6 April 2010 the time limit on claiming higher rate tax relief is due to be reduced from six to four years.
Capital Gains Tax
Every individual can make capital gains up to their annual exemption (£10,100 for 2009/10) without paying any capital gains tax. Although capital gains are currently taxed at 18%, which is lower than the top rates of tax for income and dividends, there is no guarantee that capital gains tax will stay at 18%.
As the annual exemption cannot be carried forward it may be appropriate to dispose of chargeable assets before 5 April 2010 and thus crystallise gains up to the value of the annual exemption.
Capital losses can only be offset against capital gains, but capital losses can be carried forward indefinitely. In may also be appropriate to crystallise losses before the end of the tax year or register undeclared losses from previous tax years. Please note that capital losses must be registered with HM Revenue & Customs within five years and ten months of the end of the tax year in which they were made.
Inheritance Tax
Individuals seeking to minimise their inheritance tax liability should not overlook the main gifting exemptions e.g. gifts between spouses/civil partners, annual gifts up to £3,000, small gifts up to £250 per person per tax year, gifts that form part of normal expenditure out of income, gifts on marriage/civil partnership and gifts to charity.
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