MARCH may be the month of mad hares, but the looming tax deadline is enough to drive the rest of us crazy. Fail to use allowances and reliefs before April 5 and they are lost for ever.
We show you how to keep calm with a systematic approach.
Spouses and civil partners need to look at their collective savings and investments. Where one is not working and has an unused personal allowance (currently 6,035) then assets should be held in this name. The same applies where one pays more tax than the other. Put nest eggs in the hands of the one paying lower tax.
And don't forget that children have a personal allowance too which allows them to shelter income from money given to them by anyone but their parents from tax up to the personal allowance limit.
They can only earn 100 annually tax-free from interest on cash given by each parent, but this can also be a valuable tax break for young families.
Now is the time to consider topping up your pension. In any tax year you can contribute your entire salary, up to certain limits over a lifetime. The advantage is that the cash is invested from pre-taxed earnings, which means you pay no income tax.
Non-earners can also pay up to 3,600 per annum with no earnings and enjoy some tax relief.
Many pension savers will be nervous about investing more into their pension given the sharp drops in share prices. But pensions are a long-term investment, and in five or 10 years you might look back and be glad you injected cash somewhere near the bottom of the market.
There are added advantages for the over-50s. They can shelter their income from income tax and take 25% back out straight away by way of a tax-free lump sum. The rest, however, must be used to buy an annuity or left in an investment fund.
The annual inheritance tax threshold is 312,000, which sound generous, particularly for a couple. Yet despite property price falls, many family homes will still be caught up.
As we approach the end of the tax year, it is an opportunity to think about what more can be done. You can reduce your bill if you give gifts away, provided you survive for seven years.
You can make annual gifts of 3,000 in total. You can also give 5,000 from your estate in presents to a child who is getting married. And you can make unlimited small gifts to grandchildren and others.
The crucial move is to maximise your tax-free Individual Savings Accounts, at the very least your cash Isas. Many are sceptical that with rates so low they are worth bothering with.
However, interest rates will rise again, and possibly significantly. It is as important today to wrap your deposits in an Isa as it has ever been.
You can invest 3,600 in a cash Isa and 7,200 in an equity Isa. The cash Isa protects your interest from income tax, while the equity Isa shields investment growth from capital gains tax.
Parents with spare cash to save for their children's future education may wish to consider topping up their offspring's child trust funds. Parents and other relatives may contribute up to 1,200 per annum. Every child born after August 2002 has a fund.
Capital Gains Tax
You can make capital gains tax-free up to 9,600 in the current tax year. This allowance cannot be carried forward, so if you have some big capital gains looming you should carefully consider the timing of the sale of assets in order to maximise each year's CGT allowance. Losses can be offset against gains, which must also be thrown into the equation.
If you own a second home you have been renting out, you may wish to claim holiday letting relief. Provided it is available for let for half the year and actually let for 10 weeks, any loss on the activity can be offset against other income tax bills.
Buy-to-let investors can claim up to 1,500 against letting profits for loft insulation, cavity wall insulation, draught-proofing, solid wall insulation and hot water insulation. Work needs to be completed before April 5, 2009, to qualify for this tax year.
Tax bills can be reduced by making gifts to charity via the Gift Aid form. However, they can be even more beneficial to higher rate taxpayers. While the charity claims basic rate relief, the higher rate taxpayer pockets the difference up to 40%. This can be handed over to the charity or kept by the taxpayer.
For the adventurous
Generous reliefs are available to encourage investment in new companies, but the risk that they could fail is high. Enterprise Investment Schemes allow you to invest directly into EIS schemes or specialised EIS funds investing in a portfolio of companies. But you get 20% tax relief, so a 100,000 investment only costs 80,000. A minimum of 500 needs to be invested. Another option is Venture Capital Trusts, which attract relief at 30%.
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Friday 24 May 2013
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