Top Tax Year End Tips

In previous issues:-

Tax Planning for the Tax Year End – and Beyond Pension Protection Fund Taxation of Trusts and the 2006 Budget Civil Partnerships Why do Life Insurers ask so many Questions? Writing a will 6 April 2006  Will See a Revolution in Pensions The Private Residence & Inheritance Tax Traded Endowment Policies

As the end of the Tax Year on 5th April approaches once again, it is always an opportune time to take advantage of all tax breaks available to reduce the amount of tax payable in the current tax year.  Here are some suggestions:

Pension Planning

• Pay a pension contribution of £2,808 net (which will be grossed up to £3,600) for non-working spouse, children or grandchildren who will receive tax relief of 22% in the current tax year.

• Pay a personal pension contribution of up to 100% of earnings to benefit from higher basic rate tax relief in 2007-08, (22% compared to 20% in 2008/09).

Investment Planning

• Maximise Individual Savings Account (ISA) allowance – currently £7,000 per person per annum can be invested with gains exempt from income and capital gains tax (CGT).

• Realise capital gains to maximise use of the £9,200 CGT annual exempt allowance. Child Trust Fund (CTF) – a top up of up to £1,200 can be made per child per tax year.

• Consider disposal of assets under the current CGT regime, where indexation and taper relief may well mean the effective rate of tax paid is below the new proposed rate of 18%.

Inheritance Tax Planning

• Maximise use of the inheritance tax (IHT) exemptions, including the annual exemption of £3,000 per individual, which can increase to £6,000 if last year’s allowance has not been used (£12,000 for a married couple).

• Review existing life policies (especially protection policies) and see if they should be written into trust, as millions of pounds are paid unnecessarily in inheritance tax on these types of policies every year.

• Consider gifting surplus income to reduce increasing IHT liability.

• Ensure suitable wills are in place, and effective use of available nil-rate bands is achieved.