As the tax year end approaches now is an ideal time to review your tax and financial planning requirements. High earners in particular could save a considerable amount of money by implementing some tax planning ideas before 5th April this year.
With the Office of Tax Simplification (OTS) carrying out a review into all tax reliefs, allowances and exemptions, and identifying reliefs, you may want to consider making sure any tax planning is executed before the 23rd March 2011 Budget, which will take account of the OTS recommendations. Further details about the review can be found on the Treasury website.
Here are some of our tips to make the most of the tax saving opportunities that exist for individuals under the current tax rules.
Make full use of personal allowances
Married couples and civil partners could achieve various combinations of income reduction by transferring income producing investments between themselves.
For example, a high income couple may want to ensure that at least one of them preserves their personal allowance. Or make the most of the basic rate tax band and personal allowances for a non working partner. Ultimately, which is the most tax efficient combination will depend on the facts of each case.
Get your pension contribution in before 5th April
With the change in maximum pension contributions (down from £255,000 to £50,000 per annum) now is the time to make large pension contributions. So, if you’ve come into some money from an inheritance or redundancy and you are still unsure whether to invest in your pension or elsewhere, you’d better make a quick decision to take advantage of higher rate tax relief on the contributions and reduce liability to higher rate tax. You need to be careful on this one as you need an existing pension with a pension input period ending in the 2010/11 tax year, so take advice before utilising this last year of high annual allowance.
Use your Capital Gains Tax allowances
As capital gains tax allowances can’t be carried forward, you need to consider your current and future plans to make sure you take advantage of your annual CGT allowance this financial year. If you are thinking of disposing of shares or property for example, look at the capital gains tax implications if you are likely to see a gain of more than £10,100.
Consider investing in Venture Capital Trust for 30% tax relief
Investments into Venture Capital Trust attract tax relief equal to 30% of the sum invested. This is limited to the amount of tax paid in the tax year. Whilst investments must be held for a minimum of 5 years to prevent the relief being clawed back they are certainly worth considering.
Everyone wants to pay less tax, but knowing how can be complicated so do make sure you get expert advice from a fully qualified Chartered Financial Planner. And to take advantage of savings available this financial year you’d better act quickly.
Andy Parker
Chartered Accountant and Chartered Financial Planner