As the 5th April approaches it is time to review your affairs and explore some of the opportunities available to reduce your UK tax bill!
The following table summarises the main tax allowances available, in most cases they are wasted if they are not used before the end of the tax year:
|Type of Relief||Annual Allowance||Tax Relief Available|
|Pension Contribution||Up to £200,000||Up to £200,000||Up to 50%|
|ISA||£10,680||£11,280||Tax Free Growth|
|Capital Gains Tax Exemption||£10,600||£10,600||Tax Free Gains|
|Venture Capital Trusts||£200,000||£200,000||30%|
|Enterprise Investment Schemes||£500,000||£1M||30%|
Some of the tax planning opportunities available to utilise these allowances include:
The annual allowance is now £50,000 and you can carry forward unused pension relief from the prior 3 tax years. Therefore, contributions of up to £200,000 may qualify for higher rate tax relief in 2011/12.
Various commentary has suggested higher rate tax relief may be abolished on pension contributions, so this year may be the last chance to get up to 50% tax relief for higher earners.
Capital gains tax (CGT)
If you have assets which have increased in value you could uplift the base costs and utilise your Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More annual exemption. Rebasing could be achieved with shareholdings through ‘Bed and Spouse’ and ‘Bed and SIPP’, ‘Bed & ISA’ transactions. Contact us for more information on these planning techniques.
Foreign Exchange Gains
From 6 April 2012, it is no longer necessary to report gains and losses on movements on foreign currency bank accounts acquired for investment purposes.
If you have a significant unrealised sterling gain on a foreign currency bank account, it could be worth postponing payments from that account until after 5 April.
Utilise Spouses Tax Free Allowances, Exemptions & Lower Tax Bands
You and your spouse are entitled to the same tax free allowances and exemptions. You should consider if it is appropriate to transfer assets or hold them in joint names in order to reduce your tax liability next year.
Tax efficient investments
Enterprise Investment Schemes (EIS)
Key benefits: 30% income tax relief, capital gain tax exemption after 3 years, inheritance tax exemptions, Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More deferral.
Venture Capital Trusts (VCT)
Key benefits: 30% income tax relief, capital gain tax exemption after 5 years, tax-free dividends
Individual Savings Accounts (ISA)
Key benefits: Tax free growth and no capital gains tax on exit, can be a cash ISA or Stocks & Shares.
When considering making a tax efficient investment It is important that you take advice from an Independent Financial Adviser, please let us know if you would like us to recommend one.
If you would like to consider any of these, or any other, tax planning opportunities, in more detail please contact us at the earliest opportunity.