Six Things To Do Before The End Of The Tax Year

The end of yet another tax year is in sight bringing an opportunity for you to put your tax affairs in order

Below is a brief summary of some of the tax saving opportunities available to you before 5 April 2008.

1. Pension contributions
Are you contributing to your employer’s pension scheme or, if they do not have one, a personal pension plan? Tax relief (at your highest rate of tax) is available on the contributions you make up to the higher of your earnings and the annual cap - £225,000 for 2007/08.

If you have no earnings then you could contribute £3,600 per annum to a stakeholder pension instead with basic rate tax relief so that the £3,600 reduces to £2,808. The basic rate of tax reduces from 22% to 20% on 6 April 2008 so the cost of the net contribution in 2008/09 will increase from £2,808 to £2,880.

2. Individual Savings Accounts (ISAs)
ISAs provide tax free income and capital gains. £3,000 of the annual contribution limit of £7,000 can be held as cash, the balance is invested in stocks and shares and unit trusts.

3. Capital Gains Tax - Annual Exemption
Each individual’s capital gains tax (CGT) annual exemption is £9,200 for 2007/08. Unfortunately, you cannot transfer the allowance to someone else or carry it forward to the next tax year. So make sure the allowance is not wasted by reviewing your investments and consider whether it is appropriate to make any disposals.

4. Capital Gains Tax -Indexation Allowance
Indexation is being abolished after 5 April 2008. It was introduced to reduce gains on the disposal of investments acquired between 31 March 1982 and 5 April 1998.

There is a real opportunity for spouses (including same-sex couples who have entered into a civil partnership) to lock in this relief for a lower tax bill when an investment is sold. When assests are transferred between spouses the Revenue view the value of the transaction as neither “a gain nor a loss” . This means that the transferee spouse’s base cost is equivalent to the original cost of the investment plus any indexation relief that has accrued to 5 April 1998.

5. Inheritance Tax -Annual Exemption
You can give £3,000 away free of tax each year. If you did not use last year’s exemption you can add it to this year’s allowance letting you give £6,000 away in this current tax year.

6. Normal Expenditure made out of Income
Giving away regular gifts out of income offers an immediate exemption from inheritance tax. To qualify for the exemption the gifts must be regular and must not reduce your standard of living. If you have surplus income and make regular gifts do not overlook this valuable exemption.

Now that your tax affairs are in shape, sit back, relax and look forward to the summer.

For further information or advice contact Malcolm Emery

Published 24/03/2008. The author of this article is Malcolm Emery