WITH only a handful of days remaining of the tax year, if you have not done so already, now is the time to act if you want to hang on to more of your hard-earned cash and pay less to the taxman.
Income tax: if you haven’t fully used your personal allowance for the current tax year opportunities are limited, but now is the ideal time to look at how your assets are arranged and to whom the income is paid. The basic allowance for 2008-09 is £6,035. Transfer income-producing assets now to a lower-taxpaying spouse and you will have a full tax year ahead to maximise any benefits.
Capital gains tax: if you are lucky enough to have made gains in the current tax year, make sure you use your allowance. For 2008-09 the annual exemption is £9,600.
Given that this year has been terrible for most forms of investment, now could be a good time to make changes to your portfolio. Changes for once can be made for investment reasons while tax implications may be minimal.
Inheritance tax: use your annual exemptions. Each individual has a gift exemption of £3,000 for each tax year. If unused, the exemption can be carried forward for one year only before it is lost.
Remember also that gifts out of income made regularly are without limit, provided the person making the gift is left with sufficient income to maintain their usual standard of living. Over time, this can be a highly effective way of passing money down the generations that would otherwise be liable for this tax.
Pension planning: pensions remain one of the best ways of saving income tax. A contribution of £1,000 costs a higher-rate taxpayer £600. Where else can you get a return on your investment of 67% overnight? If your employer agrees to a salary or bonus sacrifice arrangement allowing the national insurance to be saved too, then you can almost double your money through clever use of pension reliefs and allowances.
Contribution levels are very generous now, being the greater of your UK earnings or £3,600 per year.
Individual savings accounts: the tax benefits short term are minimal but can be of value as assets build up within this tax-favoured environment over time. Up to £7,200 can be invested per person per tax year and up to £3,600 of this money can be invested in cash.
Venture-capital trusts: up to £200,000 can be invested in a VCT in a tax year with tax relief at 30%. Dividends are tax free and can be a valuable, tax-free income stream. If gains are made, there is no capital gains tax on disposal.
Enterprise investment schemes: tax relief is available at 20% on investments in qualifying shares of up to £500,000. Capital gains tax deferral is also available in respect of disposals within the previous three years.
Gordon Wilson is managing director of Thomson Shepherd Investors. He can be contacted at the Aberdeen office on 01224 619215