Last chance to maximise tax savings for this year

The global recession and the resulting deficits have resulted in Governments the world over looking to increase taxes to deal with the shortfall. However, certain planning opportunities exist which could help you protect your hard-earned cash from George Osborne’s ever-longer reach. There are many opportunities for you to reduce your tax burden but capturing some will require changes to be in place by 5 April 2011. Act on these now or lose the potentially valuable savings.

Reduce your personal tax burden for this year by making these changes now:

Top up your pension
Gain additional tax relief by paying more into your pension. Remember, even an £800 contribution creates £200 in tax relief (or more for higher-rate taxpayers). Furthermore, the new Government’s scrapping of the previous proposals means that top rate tax relief is here to stay – at least for the time being. It is important to take advice, however, to avoid falling foul of some of the new provisions. For additional savings, consider stakeholder pensions for the non-earners in the family, such as spouses and children. Employer contributions can be particularly effective.

Wind up your company without paying income tax
For some years it has been possible to extract cash from your company without incurring income tax by liquidating the company, thus ensuring the proceeds are only subject to the cheaper rate of CGT. This could be achieved without incurring the expense of a formal liquidation process. Although there are limitations to this opportunity, there are ways around them. However, the Government is now considering new legislation which could close down this opportunity for many so if you are contemplating using this concession, bear in mind that the rules could change as early as April this year.

Maximise tax-free savings
Maximise your deposits in tax-free investments (e.g. ISAs) and utilise your annual allowance. However, be aware of those institutions that use the tax free attraction to offer derisory rates of interest.

Use low income family members
Gift assets to a lower-earning spouse and gain a tax saving by using their annual personal allowance and lower tax bands.

Reduce inheritance tax with gifts and transfers
Consider reducing your estate, and therefore its inheritance tax liability, by giving away money or assets up to the value of (currently) £3,000 per year. Tip: The £3,000 limit applies to both spouses. Gifts greater than this value can also be given but they only become free of inheritance tax should you survive for seven years beyond the date of the gift or if the gift is “out of income”.

Reduce your capital gains tax
Consider whether or not you would benefit from the disposal of any assets with gains worth up to this year’s tax free threshold of £10,100. Alternatively, have you already made gains which could be reduced by crystallising a loss on another asset? Although conventional “bed-and-breakfast” transactions are no longer effective, there are other ways around the problem.

Investigate tax shelters
Subscriptions to Enterprise Investment Scheme companies and Venture Capital Trusts can attract significant tax relief for basic and higher rate taxpayers and, under the Enterprise Investment Scheme, you can defer the payment of CGT on other assets. Obviously, some risk may apply.

Andy White
Partner
CBW
http://www.cbw.co.uk/staff-directory/andy-white
Part of the MGI Alliance
http://www.mgi-uk.com