Still time to maximise end-of-year tax planning opportunities
As the end of the tax year approaches we provide a quick rundown of the main areas of consideration for end of tax year planning.
Income tax: Are you making use of personal allowance and tax rate bands?
Husbands and wives have their own respective personal tax allowances for income tax purposes. Very often it is the case that one or the other partner has all the income producing assets in their own name. However, a transfer of income producing assets between spouses could result in tax savings.
ISAs: Have you used all of your allowance?
Maximise those ISA allowances for tax free interest payments. £10,200 can be directed to a stocks and shares ISA before 5 April 2011, of this £5,100 can be invested in a cash ISA.
Pension contributions: Act now before new legislation comes into force
With pension contribution legislation having been completely rehashed, you could look to maximise pension contributions this year, particularly as they will be restricted to £50,000 from 6 April 2011. However, due to the complexities of anti-forestalling legislation, it would be wise to seek professional advice on this matter. If you’ve made some chargeable gains on Investment Bonds this year and you are a higher rate tax payer, it may be possible to offset the additional 20 per cent tax liability on the gain by making a pension contribution.
Capital gains tax (CGT): A must for capital growth investors
With markets rallying well over the past twelve months, use of this annual allowance is a must for capital growth investors. Each individual, including children, is entitled to an annual capital gains tax allowance of £10,100 (in 2010/11). Allowances cannot be carried forward if they have not been used. Therefore consideration should be given to crystallising gains to the extent of any unused allowance by the selling of chargeable assets by 5 April 2011. Further CGT could be saved by making full use of a spouse’s annual CGT allowance. Consider making outright gifts to a spouse before a sale to use both annual CGT allowances.
ISA wrappers: A way to shelter investments?
Potential tax savings can be made by selling an investment and then buying it back within an ISA wrapper. There are potentially large advantages in sheltering income-bearing assets in an ISA and the tax savings on these alone could offset the transaction costs in a short time.
These are some of the ways you could make significant tax savings before the tax year ends. Remember though, everyone’s circumstances are different and professional advice is recommended to ensure these approaches meet your needs.