The 2012/2013 tax year is nearly over, but there is still time to make the most of this year's unused allowances.
Pension Planning Opportunities
Contributing to a personal pension can, at least for the time being, be an extremely tax efficient investment.
The annual allowance in the current tax year (2012/13) is £50,000 or 100% of earnings if less, which should provide sufficient scope in many cases. This will fall to £40,000 in 2014/15. However, with the facility to carry forward unused annual allowance from the previous three tax years, there is a window of opportunity to sweep up any unused allowance.
With tax relief available at an individual’s marginal rate, up to 50%, pension contributions should be an important part of anyone’s tax year end planning.
You should consider contributing as much as you can this year to get relief at 50% instead of 45% in 2013/14 if you pay tax at the additional rate.
The 5 April deadline is still relevant for using up ISA allowances for the current tax year. You can invest up to £5,640 in a cash individual saving account (ISA) and up to £11,280 in a stocks and shares ISA in 2012/13. The total investment is limited to £11,280 so if you invest, say, £3,000 in a cash ISA, you can only invest £8,280 in a stocks and shares ISA. The annual limits are increased in line with inflation each year.
The growth within ISAs is tax efficient and they can also provide a tax-free income when required. This is a valuable allowance and should be used as fully as possible each year.
Remember that 16 and 17- year olds can open a cash ISA, but the rules effectively prevent you from opening an ISA for your own children.
Parents and others can contribute to a junior ISA for children of any age who do not have a child trust fund. The payment limit is £3,600 in 2012/13. Funds are locked in until the child is 18.
Capital Gains Tax Exemption
We all have an allowance to offset against any capital gains. The exemption is currently £10,600 and should be used if possible to either help provide a tax-fee income each year or for wider planning and restructuring investments.
Gains above the annual exemption are taxed at 18% where taxable gains and income are less than the basic rate limit of £34,370 in 2012/13 and £32,010 in 2013/14. The rate is 28% on gains that exceed this limit. Depending on your level of income, timing your disposals either before or after the end of the tax year could result in more of your gains being taxed at 18% rather than at 28%.
Any crystallised losses from previous years can also be used, where these are available, which is worth bearing in mind.
You might be able to save CGT by transferring assets between married couples or civil partners before their disposal.
Child benefit is withdrawn where either partner has income of £50,000 or more. Withdrawal is total if income is over £60,000, and partial for income between £50,000 and £60,000. You may be able to keep your child benefit by switching income between you and your partner, or by taking other steps (for example, making pension payments), to bring your income below one of these limits.
You can get tax relief for any gifts to charity if you make a gift aid declaration. You can elect for donations made in 2012/13 to be treated for tax purposes as if you had made them in 2011/12. This will benefit you if you paid tax at a higher rate in 2011/12 rather than in 2012/13.
You can obtain both income tax and capital gains tax relief on gifts to charities of shares listed on the stock market and certain other investments.
Gifts to charity are free of IHT, so remembering a charity in your will can reduce the total amount of IHT that will be paid on your estate.
Income for Children
Children have an income tax allowance of £8,105 for 2012/13. However for children who are under 18 and unmarried, any gift from a living parent of more than £100 per year is taxed at the rate of the parent’s income.