End of Year Tax Planning
March 13th, 2012
Given that 5th April 2012 signals the end of the current tax year, this article offers a brief reminder of some of the main year-end tax planning opportunities that could be considered, depending on your circumstances.
1) Use any Income Tax allowances by transferring investments from a higher rate taxpaying spouse to a spouse who is a basic-rate or non-tax payer. Income received on the investment could then be taxed at a lower rate or become tax-free.
If you have income over £100,000, or are aged 65 or over, this could also help preserve your personal allowance.
In order to try to maintain a full personal allowance (or a higher age related allowance if you are 65 or over) the following strategies could also be considered:
• Draw an income from tax free investments such as Individual Savings Accounts (ISAs)
• Make use of 5% tax-deferred capital withdrawals from investment bonds
• Contribute to a pension (if under 75) and/or donate to a charity, both of which reduce your total income by the amount of the gross contribution made for the purpose of the personal allowance income test.
• Switch from income generating funds to funds geared for capital growth (although there could be tax consequences when switching funds so advice is essential)
2) Make full use of your Capital Gains Tax (CGT) annual exemption. In 2011/12, this is £10,600 and is therefore worth up to £1,908 in terms of a tax saving for a basic rate tax payer (£10,600 x 18%) and £2,968 for a higher rate taxpayer (£10,600 x 28%). Ignoring capital losses, a couple could therefore incur a capital gain of up to £21,200 without triggering any CGT liability.
3) Make use of any capital losses to offset against any capital gains. Remember however that where gains and losses occur in the same tax year, you must offset the current year’s losses against the gain in full, even if this reduces the gain to less than the annual exemption.
4) Maximise use of ISA allowances to shelter income from tax. In 2011/12, the maximum contribution is £10,680, of which £5,340 can be paid into a cash ISA.
5) If you are under 75, you can make tax-relievable pension contributions of up to the greater of £3,600 and 100% of your relevant UK earnings. Remember though that if total contributions made by you (or on your behalf) exceed £50,000, this could incur an annual allowance charge.
6) Tax incentives are available for investments into Enterprise Investment Schemes and Venture Capital Trusts. Please note, however, that the high risk attaching to such investments is likely to make them unsuitable for most individuals.
Please note that the above list is for general information only and does not constitute advice. It is important to seek financial advice based on your own personal circumstances before engaging in any tax planning exercise or making any investments. Please feel free to contact us to arrange a meeting and we will be happy to discuss which tax planning opportunities might be appropriate for you.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor
The value of your investment can go down as well as up and you may not get back the full amount invested