By Richard Mannion - National Tax Director at Smith & Williamson

As we have entered 2011, it’s worth remembering that the end of the tax year is only three months away. Here are some points which will no doubt feature in year end tax-planning considerations for many.

Couples where one spouse has little or no taxable income.

It is common to find married couples where one has a substantial income, while the other has unused basic rate or even personal allowances. Could income producing assets be transferred and held in a more beneficial way? HMRC seems very relaxed about the transfer of certain assets, like property and quoted investments, into a spouse’s name. However, it remains very concerned about shares in private companies and great care needs to be taken here.

Individuals with taxable income between £100,000 and £112,950.

An effective tax saving of 60% can be obtained for an individual with total taxable income between £100,000 and £112,950 if they can find some way of reducing their income to below £100,000, for example, by means of a gift aid payment or a pension contribution.

CGT annual exemption and losses

The entire annual exempt amount and/ or losses should be offset in the most beneficial way possible. Both husband and wife have annual CGT allowances of £10,100 for 2010/2011. If gains exist in the family, these can be used with simple planning. At 28%, the annual exemption is worth £2,828 (£5,656 for couples), so it’s not to be sneezed at.

CGT entrepreneurs relief

In order to qualify for entrepreneurs relief on the disposal of shares in an unquoted company an individual must be an officer or employee for the 12 months prior to sale and own at least 5% of the shares and voting rights for that time. This point can be easily overlooked and should be remembered in advance of any sales.

Private residence election

Once a dwelling has been regarded as the only or main residence at any time during ownership, the last 36 months of ownership will be exempt from tax. Where there are two or more residences available, it is possible to nominate which is to be treated as the main residence by making an election within two years of the time when the second residence becomes available. A new two-year time limit starts whenever there is a new residence in the mix.

These rules can be of great benefit to owners of two or more residences, so be sure to take proper advice.

Tax efficient investments

There are a number of legitimate ways to reduce your tax bill through investing. The most simple is the Individual Savings Account, but there are others such as Venture Capital Trusts and the Enterprise Investment Scheme which give a variety of potential reliefs. But don’t let the tax tail wag the dog- always remember that the value of investments can go down as well as up and that expert advice should be taken prior to committing your funds.

Inheritance tax planning

The decision to freeze the nil rate band means that individuals should take advantage of the full range of exemptions and reliefs. Most lifetime gifts are exempt provided the donor survives seven years from the date of the gift. Regular gifts made out of excess income are exempt: for example, a grandparent paying for a grandchild’s school fees.

Pension planning

From 6th April 2011, the new pension rules will be less attractive for those on incomes of less than £150,000 who can currently pay a pension contribution up to the level of their earnings and get full tax relief. So, someone with earnings of £100,000 this year could make a £60,000 pension contribution and it would cost them £36,000 after 40% tax relief. Under the new rules, the maximum contribution will be £50,000 and so individuals with incomes below £150,000 this year should consider paying large pension contributions before 6 April 2011.

Some taxpayers will be able to carry forward unused allowances from 2008/9, 2009/10 and 2010/11 to the 2011/12 tax year and so there is no ‘one size fits all’ answer here. Each case will need to be considered on its merits.

For help with your end of year tax planning call Richard Mannion on 020 7131 4252 or email richard.mannion@smith.williamson.co.uk

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