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Individuals Tax planning ideas for the year ended 5 April 2011

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16 March 2011

Whilst the Government is after every penny it can get to bolster public finances, you should review your tax position to ensure you are paying no more tax than you need to. These ideas are just a sample and are not covered in detail. To talk through your specific circumstances please speak to your usual Hazlewoods contact.

1. If you are a couple and one spouse has little or no taxable income – transfer income producing assets
It is often the case that one spouse has significant income some of which is taxed at the higher rate (40%) or the additional rate (50%). While the other spouse has not fully used their basic rate band or even their personal allowance. If you have income-producing assets you should see if they can be held more tax efficiently. The transfer of property and investments between spouses generally does not raise concerns with HMRC. However, more care should be taken if it is shares in a private company.

2. If your income is between £100,000 and £112,950 – reduce it
If your income is between £100,000 and £112,950 you can achieve an effective tax saving of 60% if you reduce it to below £100,000. This could be done by making a gift aid or pension payment.

3. Use your Capital Gains Tax (CGT) annual exemption
Husbands and wives each have a CGT annual exemption of £10,100 for the current tax year. At the mainstream CGT rate of 28% this can be worth £5,656 per couple, so make sure you are using both exemptions as fully as possible.

4. Make use of your Inheritance Tax (IHT) exemptions and reliefs
The IHT nil rate band has been frozen at £325,000 until at least 2014/15. It is therefore more important than ever to use the exemptions and reliefs available to you. Most gifts you make during your lifetime will be exempt from IHT as long as you survive seven years from the date you make the gift. Other exempt gifts include regular gifts made out of excess income, and a gift of up to £5,000 to a child when they marry. If you would like a copy of our factsheet about IHT which includes a list of the basic exemptions speak to your usual Hazlewoods contact.

5. Maximise your ISA investments
The annual savings allowance for 2010/11 is £10,200 of which £5,100 can be in cash. Hazlewoods Financial Planning can help with this.

6. Use children’s personal allowances
Children have tax allowances to use against their income. Generally parents are not allowed to transfer investments to their children without suffering tax consequences. However, if the annual income received by a child from capital provided by a parent is less than £100, there will be no tax suffered by the parent.

7. Make the most of Child Trust Funds – if lucky enough to have one
Children born on or after 1 September 2002 but before 3 January 2011 that live in the UK, have Child Benefit claimed for them and are not subject to any immigration restrictions are entitled to a Child Trust Fund (CTF) account.
If a child has an account, parents, family and friends can contribute up to £1,200 between them per year into the child’s CTF, without the parent or child being taxed on any income or gains from the fund.

8. Maximise furnished holiday lettings reliefs
If you have a qualifying UK or EEA based holiday letting activity you should maximise the available beneficial tax breaks before they change on 6 April 2011.

9. If you are planning to leave the UK plan carefully
If you are leaving the UK and intend to become non-UK resident for tax purposes, you need to plan carefully.

  • The rules on non-residence have changed in recent years, in particular you should:
  • Consider the timing of your departure because residence status normally applies for the whole year.
    Plan your visits to the UK carefully and keep some ‘spare’ days in case of emergencies.

10. Check your record keeping
HMRC are becoming more targeted in their approach to tackling tax avoidance and evasion and good record keeping is essential.