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Making the most of tax breaks before 5th April 2013

The last day of the current tax year 2012/13 is on 5th April 2013 and is looming fast! But are you making the most of the available tax breaks? 

Here Bobby Lane, a partner at accountancy firm Shelley Stock Hutter gives a guide on the tax planning that you could carry out between now and the end of the tax year.

Personal Pensions

Personal pension legislation can get complicated even to the experts! However, you could look at maximising your pension contributions into a personal pension plan. The maximum contribution you can make this tax year is £50,000  Also, if you have not used your pension allowance in the previous 3 tax years, you  can use the balance by 5th April 2013, as long as:-

  • The total does not exceed your income in the current tax year.
  • You had a pension scheme in force during that period.

You will be able to obtain tax relief at your highest rate of tax which, up until 5th April 2013, is 50% if your income is more than £150,000. The top rate of tax is going down to 45% on 6thApril. So if you are a 50% taxpayer and are considering making a large payment into your pension plan in the next few months,  you should make sure you do so before 5th April. Bear in mind that on 6th April 2014, the annual allowance is going down to £40,000 - if you have the leeway and the cash-flow, it would make sense to maximise your contributions before then.

Individual Savings Accounts (ISA’s)

  • Interest and income from an ISA is tax free and therefore it is a good investment particularly for higher rate taxpayers. The maximum you can invest in the current tax year is £11,280 of which £5,640 can be paid into a Cash ISA. The total allowance, and/or the balance after investing in a Cash ISA, can be invested into a Stocks & Shares ISA.    
  • You do not have to put “new” cash into a Cash ISA. If you already have savings in a bank or building society deposit account where the interest is subject to tax, and you have not taken out an ISA in the current tax year, consider moving part of your savings into a Cash ISA as this will shelter the income from tax from the date of the transfer.

Capital Gains Tax

  • If you have Stocks & Shares that are worth more than you paid for them, you might want to consider transferring part of your holding into a Stocks & Shares ISA.
  • If you have not already taken an ISA out in the current tax year you will have the full entitlement, i.e. £11,280 intact. The transfer will be regarded as a sale for capital gains tax purposes but provided you have made no other capital gains in the year, capital gains up to £10,600 are tax free.  
  • If you have already made capital gains in the current tax year which are subject to tax, but you also have some assets that you wish to sell that have losses attached to them, it is worth doing this prior to 5th April as the losses can be set against capital gains made in the same tax year.
  • Another way of utilising your Capital Gains Tax exemption, i.e. if you have already maximised your ISA investments, is to transfer shares with a capital gain attached to your spouse.  
  • Transfers between husband and wife are free of capital gains tax.  If they have not already used their annual exemption in the current tax year they also have an exemption of £10,600.

Inheritance Tax

  • Everyone has an annual gift exemption of £3,000 per tax year.   So if you and/or your spouse have not made any gifts e.g. to children or grandchildren in the current tax year you could make a gift of £3,000 each free of Inheritance Tax.  
  • If you have not used the annual gift allowance in the previous tax year, this can be used as well, and means  that you would have up to £6,000 each to gift to a third party free of Inheritance Tax. After 5th April any unused annual gift allowance from 2010/11 will be lost.

Income Shifting

  • If you are married and your spouse is either a non taxpayer or pays tax at a lower rate than yourself you should consider transferring any income earning assets into their name wholly or in part.  
  • This will only be effective from the date of the transfer, but if you make the transfer sooner rather than later you at least will have covered the position for the whole of the next tax year which commences on 6th April 2013.

Bobby Lane is a partner at Accountants and Business Advisors firm Shelley Stock Hutter LLP.  He advises many fashion and creative businesses on all aspects of their business

[email protected]

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