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With 5 April 2010 fast approaching, here are some
topical tax saving ideas to consider now
ü
Spouses
Married couples and civil partners should ensure they are both
using their personal allowances and lower rate bands by equalising
the ownership of income-producing assets, particularly if one is
subject to 50% income tax rates and/or a restriction on his/her
personal allowance.
ü
Reduce Income
From 6 April 2010, those with income between £100,000 and
£113,000 are subject to an effective rate of tax of 60%. They
should consider reducing their taxable income by way of pension
contributions and/or charitable donations to prevent a restriction
in their personal allowance.
ü
Charitable Donations
Charitable donations should be made by the spouse with the
highest income level in order to benefit from higher-rate tax
relief under the gift aid scheme. Otherwise, lower income taxpayers
may incur a tax charge. Gifting investments, such as stocks and
shares, may also be more tax-efficient.
ü
Use the CGT Annual Exemption
In view of the large discrepancy between income tax and CGT, and
to use the CGT annual exemption, investors may wish to invest for
capital growth. But consideration should be given to any potential
future increase in CGT rates.
ü
ISAs
Use the annual savings allowance for Individual Savings Accounts
which will increase from £7,200 to £10,200 in 2010/11.
The increased allowance already applies to people over 50.
ü
Pension Contributions
Advice should be taken to maximise the tax relief attributable
to pension contributions.
ü
Furnished Holiday Lettings
The tax breaks applicable to UK furnished holiday lettings have
been widened to cover those in the EEA, but they are to be scrapped
from 6 April 2010, so review any scope to claim tax relief under
the revised rules now.
ü
Reduce Payments on Account
If income levels are fluctuating and payments on account are
required, it may be appropriate to reduce the payments (but
consider interest charges, which will arise on any
underpayment).
ü
Investment Losses
Consider loss claims for any investments which may now be of
negligible value. In some instances the loss can be offset against
income, which may provide greater tax relief.
ü
Gains from Offshore Funds
Consider the early realisation of any gains arising in respect
of non-distributor offshore funds, e.g. hedge funds, which are
subject to income tax rather than CGT, to ensure lower rates of
income tax apply.
ü
Accelerate Income and Defer
Expenditure
Where possible, income should be accelerated in the current tax
year and expenditure deferred. However, HMRC has noted that
anti-avoidance provisions may be introduced to prevent such
planning.
ü
VCTs and EISs
HMRC-approved Venture Capital Trusts and Enterprise Investment
Schemes provide tax relief and may be an alternative tax-efficient
investment opportunity to pension contributions.
ü
Property Relief
If individuals own more than one property they may be eligible
to make a principal private residence (PPR) election to maximise
PPR relief.
ü
Sole Traders and Partnerships
Sole traders and partnerships may wish to consider changing
their accounting year-end to bring profits into tax earlier, but at
lower rates of income tax. This will crystallise any overlap
relief. Consider cash flow as tax liabilities are brought forward.
Alternatively, with lower rates of corporation tax the conversion
to, or introduction of, corporate entities may be appropriate.
ü
Review Borrowing Structure
Anyone with tax-efficient borrowing opportunities, such as the
self-employed or those with investment properties, may wish to
review their borrowing structure to ensure maximum tax
efficiency.
ü
Inheritance Tax Planning
Those planning for IHT should make full use of annual exemptions
such as the £3,000 annual allowance and regular gifts out of
income if considering lifetime gifts. Consider IHT reliefs such as
agricultural or business property relief, and the nilrate band.
ü
Review Wills and Life Assurance
Policies
Now is a good time to review wills and life assurance policies,
ensuring that the latter are written into trust.
ü
Trusts
Trustees should note that the 50% income tax rate applies to all
income, i.e. without the benefit of the £150,000 band that
applies to individuals. Trustees may wish to review trust deeds to
see if distributions can be directed to beneficiaries who are
subject to lower rates of taxation and also whether converting a
discretionary trust into a revocable life interest is
appropriate.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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