UK: Year-End Tax Planning Checklist

Last Updated: 23 April 2010
Article by Guy Rigby

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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