Tax planning news

Get set for the new tax year with a review of your finances

7 March, 2007

Leonie Kerswill, tax partner, PricewaterhouseCoopers LLP, said: “While many will be looking forward to the Easter weekend, it is important that people take time to review their finances and ensure they have made the most of the tax reliefs and investment vehicles available to them. Just like there is always room for one more chocolate, there is always room to make your financial affairs more tax efficient.”

“A little effort now will be well worthwhile and might provide a little nest egg for the coming year.”

Make use of tax free ISA allowances

The maximum investment limit for ISAs remains £7,000 for 2007/08. Of this, up to £3,000 can be invested in a cash mini-ISA, or the whole £7,000 in a maxi-stocks and shares ISA. The maxi-ISA invests the stock market, so should be invested for at least a five year period.

Capital Gains Tax (CGT)

If assets are disposed of, such as shares or a second property, and they make a profit, they may be liable for a CGT charge. However, gains may be reduced by taper relief, which reduces the rate of CGT the longer the asset has been held, from a maximum of 40 per cent down to 10 per cent in some circumstances.

The annual exemption has not yet been set for 2007/08 but it was £8,800 for 2006/07. Married couples or those in civil partnerships should check that they have used both of their individual CGT allowances to reduce substantial gains.

Personal tax allowances

Everyone has an annual personal tax allowance of £5,225 for the 2007/08 tax year, after which there is a starting rate, a basic rate and a higher rate of tax due on their income. If one spouse is a lower rate taxpayer, income-producing assets could be help in their name so the income is taxed at the lower rate.

If a couple decide to dispose of an asset, such as a second home or shares, a smaller CGT bill will arise if the asset held in the name of the lower rate taxpaying partner; sharing ownership can also mean both spouses’ CGT annual exemptions are used.

Inheritance Tax (IHT)

The exemptions and reliefs that apply to individuals, including the nil rate band of £300,000, should be made use of. Taxpayers should also make sure that they have a proper Will. While it won’t save IHT, a Will should make sure that assets go where they are intended to.

Remember, parents can give £5,000 to a child who is getting married, while grandparents can make a wedding gift of up to £2,500 free of IHT implications.

Give it to charity

With GiftAid, for every £1 donated by a UK taxpayer, the nominated charity can claim 28p back from HM Revenue & Customs (HMRC) – therefore increasing the donation by nearly one third. The taxpayer can then claim higher rate tax relief. Gifts of shares or land can also be made and will be exempt from CGT.

UK taxpayers receiving a salary or pension through PAYE can opt to give an amount of money from their income to charity. It is a tax efficient way for employees and those receiving a company pension to give a regular amount to charity.