January 2010

YEAR-END TAX PLANNING CHECKLIST

With 5 April 2010 fast approaching, we provide a summary of topical tax saving ideas to consider now.

INCOME TAX PLANNING

From 6 April 2010 a 50% tax rate will apply on income over £150,000. Individuals with income between £100,000 and £112,950 will suffer an effective tax rate of 60%.

Married couples and civil partners should both use their personal allowances and lower rate band by equalising the ownership of income-producing assets.

Utilise your Individual Savings Account allowance which increases from £7,200 to £10,200 in 2010/11.

HMRC-approved Venture Capital Trusts and Enterprise Investment Schemes provide income tax relief and are alternative tax-efficient investment opportunities.

CAPITAL GAINS TAX (CGT) PLANNING

Ensure that both spouses use their CGT annual exemption of £10,100. In view of the current difference between income tax and CGT rates; investors should look to invest for capital growth.

Consider loss claims for any investments which may now be of negligible value. In some instances the loss can be offset against income, which provides greater tax relief.

BUSINESSES

Sole traders and partnerships may change their accounting year-end to tax profits at lower rates of income tax.

This may crystallise overlap relief so cashflow should be considered. Alternatively, with lower rates of corporation tax, the conversion to a limited company may be appropriate.

INHERITANCE TAX (IHT) PLANNING

Use the IHT annual exemption of £3,000 and consider making regular gifts out of income which can be free of IHT. Reliefs such as agricultural or business property relief and the nil-rate band should be considered.

Review your wills and life assurance policies, ensuring that the latter are written into trust.

TRUSTS

The 50% rate of income tax also applies to discretionary trusts from 6 April 2010. Trustees should review trust deeds to see if distributions should be made to beneficiaries subject to lower rates of tax.