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Top Tips for the new Tax Year
04/06/2008
Top tips for the new tax year
1. Maximise your IHT allowance by making a gift
Inheritance Tax rules allow each person to give away £3,000 per year in gifts to others. This exemption can be carried forward for one year; therefore if no gifts were made in the 2007/2008 tax year then up to £6,000 can be given away the next year. For example, a married couple could potentially gift £12,000 to their children (£6,000 from each parent if this is the first gift they have ever made) and this would immediately be outside of their estate for inheritance tax purposes.
2. Maximise Capital Gains tax allowances
Everyone has an annual Capital Gains allowance and in the current tax year it is £9,600. Gains can be made up to this amount without incurring a tax liability.
3. Offset Capital Gains Tax Losses against Gains
On the sale of shares that have made a loss, that loss can be set against any gains made over your annual capital gains tax allowance. Capital losses may be carried forward indefinitely. The most recent losses must be used before losses brought forward from earlier years.
4. Pay into Pensions
Tax relief is available on contributions up to 100% of annual earnings. For example, on a contribution of £1,000 made into a pension scheme for a basic rate taxpayer the tax relief is worth at least £200 (for a higher rate tax payer it is £400).
5. Pension Contributions for Grandchildren
As there is no requirement for earnings following the introduction of stakeholder pensions, contributions can be made for all UK Residents - including children. A contribution of up to £3,600 can be made for a grandchild, the net cost of which is £2,880.
6. Tax at Lowest Rate
Where one spouse pays tax at a higher rate than the other, it is worth considering transferring income producing assets between them to give the income to the person paying at the lower rate.
7. Gift Aid
Following protests from charities that the value of donations will fall because the basic rate tax has dropped from 22% to 20% - the Government announced that gift aid will continue to be paid at a ‘transitional rate’ of 22% for the next three years.
Higher rate tax payers should consider making a charitable donation through gift aid as the donor’s basic rate tax limit is increased by the grossed up amount of the donation. For example, if a higher rate tax payer makes a gift aid payment of £234 to charity then the payment is treated as if it were a donation of £300 from which basic rate tax of £66 has been deducted. The charity reclaims the £66 directly from HMRC and so ends up with a total payment of £300 and the donor receives full tax relief on this amount too.
As only £234 has been paid to the charity this has in effect provided tax relief of 22% on a donation of £300. The donor’s basic rate is increased by £300. This means an additional £300 of income is taxable at 22% instead of 40%. The result is that the donor receives tax relief of 18% on £300 in their tax assessment for the year.
8. Child Trust Fund
A Child Trust Fund (CTF) is a long term savings account that can only be accessed by the child at age 18. All children born on, or after, 1 September 2002 are given a voucher from the Government worth £250 to invest into a CTF and only parents or registered contacts of the child can open a CTF.
Parents, other family members and friends can all put money into the CTF up to a maximum of £1,200 per year (a year runs from the child’s birthday to the day before their next one) and neither the child, nor contributor to the CTF, will pay income or gains in the account. However once money has been invested into the account it is classed as a gift and cannot be withdrawn.
There are three types of CTF accounts - stakeholder, shares and savings accounts. It is up to the parent/registered contact which one to choose, and if they are not happy they can always change the account.
To find out more about any of
the services we’ve mentioned
simply:
- Contact your SFS Financial Adviser
- Call a member of our Client
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