Make the most of every available tax-planning opportunity

No one likes to pay more tax than they have to but one of the challenges of wealth is the high taxation it attracts. With real-terms tax increases the prospect for the foreseeable future the pressure is on to make the most of every available tax-planning opportunity.

Different ideas will suit different people but you’d better get your skates on. With the end of tax year fast approaching on the 5 April 2014, sorting out your finances now is vital. Please ensure that you take professional advice before acting. Here are some examples of the ways in which legitimate planning could save you money by reducing your tax bills:

Make full use of personal allowances and tax-rate bands

Whatever your top rate of tax, if you have some flexibility over the timing of income, consider arranging for investment income, earnings or profits to fall into a later tax year. So long as this doesn’t increase the rate of tax you pay, deferring income may mean you can delay when you have to pay the tax.

Maximise your pension provision

Pension tax relief is due to be restricted yet further from 6 April 2014, so do you need to maximise your contributions now to make the most of your annual and lifetime allowances? Currently the annual pension contribution allowance is £50,000 but will reduce to £40,000 from 6 April 2014. The lifetime allowance will also be reduced, from £1.5 million to £1.25 million but many people may now find their chance to build their pension ‘fund’ up to the lifetime maximum restricted.

Take advantage of tax-efficient investments

There are a number of tax-advantaged investments of varying complexity. Individual Savings Account (ISA) allowances provide a tax shelter for income and capital gains. The 2013/14 limit is £11,520 per person but, if not used, the allowance is lost.

Junior ISAs are also now available which enable parents and grandparents to save up to £3,720 a year tax-efficiently for their children or grandchildren who were ineligible for child trust funds.

Enterprise Investment Schemes (EIS) can have significant advantages such as 30% income tax relief, capital gains tax exemption, a capital gains shelter and potential relief from inheritance tax after 2 years.

Venture Capital Trusts (VCTs) also offer 30% income tax relief and exemption from both income tax on dividends and capital gains tax.

Make full use of Capital Gains Tax (CGT) reliefs and exemptions

Individuals have a CGT-free allowance of £10,900 in the current tax year. If you have not realised gains of this amount, you should look at whether assets can be sold before 6 April 2014 to take advantage of this tax-free amount. If you are married or in a registered civil partnership and want to realise a gain on shares to use up the exemption, but want to keep the benefit of those shares in your family, your spouse or registered civil partner can buy back a similar number of shares to those sold –although a direct sale or gift to your spouse or registered civil partner will not achieve the desired result. If your relationship is not formalised by marriage or registered civil partnership, a gift to your partner will achieve the same result without the need to incur dealing costs.

Reduce CGT charges from 28% to 18% or 10%

If you own assets on which you qualify for Entrepreneurs’ Relief (ER) you can claim to pay a reduced rate of 10%. This relief is subject to certain criteria being met for at least a year and there is a lifetime limit of £10 million, so it is extremely important to ensure your assets qualify for this relief where possible.

Use CGT losses to the full

If you already have taxable gains, review your other assets to see if you can crystallise losses to reduce the gains on which you pay tax. If you do this, take care only to realise enough losses to reduce your gains to below the level of the annual exemption. If you have made losses that you don’t need to set off against this year’s gains, you should still claim them.

Ensure wills are up to date

You should ensure that your will is up to date and reflects your wishes. The will should be written in a way that both minimises tax and gives your family flexibility and protection in the future, for instance, by using tax-efficient trusts. Trusts may enable your heirs to make more tax-efficient plans than if assets were put into their hands absolutely, as well as helping to protect assets.

Make full use of allowances and reliefs

Inheritance Tax (IHT) allowances and exemptions to be aware of include:

£3,000 annual allowance and any unused allowance from last year

£250 per individual donee

gifts in connection with marriage

lifetime gifts that are ‘normal expenditure out of income’

Take advantage of IHT-efficient investment structures
There are numerous types of structure that offer the ability to reduce your estate for IHT purposes whilst still retaining the benefit of income or underlying capital. The amounts can be adapted to your personal needs and wishes and, for some of these investments, a portion of the amount transferred reduces the value of your estate immediately.

The Financial Conduct Authority does not regulate taxation & trust advice or will writing.