Have a new tax year health check

Published on Friday 3 April 2009 19:42

Your finances need a regular check-up and now is the time, with the end of the tax year

EACH week The Scotsman gives you a top ten guide to pertinent financial issues. Just as the start of a calendar year prompts new resolutions, so the beginning of a new tax year is the perfect opportunity to check your financial affairs are in the best order possible. Ian McGowan, director of tax services at Turcan Connell, shares his top tips for optimum tax and financial health in the new financial year.

1 MAKE THE MOST OF YOUR INVESTMENTS As the top rate of income tax is currently 40 per cent (45 per cent from 6 April 2011 on income above 150,000), compared with a flat capital gains tax (CGT) rate of 18 per cent, you could consider switching to investments which generate capital rather than income. While investment values are low, diversification in this way may be possible without incurring capital gains tax.

2 LOOK UNDER THE BONNETHaving a company car can create an annual taxable benefit as high as 35 per cent of the car's value. Where the employer also provides free fuel, this could further increase the employee's tax bill by up to 2,366. Consequently many executives now choose to receive additional salary in lieu of their company car. You should look carefully at the total tax cost of running a company car as there might be a better alternative.

3 MAXIMISE YOUR CGT ALLOWANCE (PART 1)The CGT annual allowance is set to rise in line with indexation, so gains of up to 10,100 can be realised free of tax in the 2009-10 tax year. Consider realising any investment gains that might be available to soak up any unused allowance and remember that by transferring assets to a spouse, married couples could achieve tax-free gains of up to 20,200. Be sure to time your disposals carefully to optimise the use of allowances and to defer the date by which the tax is payable. For example, CGT on a disposal anytime in the tax year ending on 5 April 2010 will be payable by 31 January 2011 whereas CGT on a disposal on 6 April 2010 will not be payable until 31 January 2012.

4 MAXIMISE YOUR CGT ALLOWANCE (PART 2)In the current climate, many investment portfolios will be showing losses rather than gains. Consideration should be given where possible to realising capital losses to set against gains on other assets in the same period as effectively this provides tax relief on those losses. In addition, low share values may provide an opportunity to diversify and reduce exposure in a particular holding without incurring a charge.

5 SHARE OPTIONSIn the current economic climate, many share schemes may not provide the benefits that previously expected. Nonetheless, scheme members should remember to check the vesting period for exercising share options where these are not "under water". The key thing to remember is diversification – never tie up too much of your savings in one place.

6 PENSION CONTRIBUTIONSDespite concerns about falling values of funds, tax relief at up to 40 per cent remains a very compelling reason for topping up your pension. Significant tax savings can be obtained as individuals can contribute up to 100 per cent of their relevant earnings to their pension fund, subject to the annual allowance of 245,000 for the new tax year starting on 6 April.

7 REVIEW YOUR TAX PAYMENTS ON ACCOUNT It may be possible to reduce the payment due by 31 July 2009 and, where relevant, it is not too late to revise 31 January payments and recover any excess tax already paid. Those in business should ensure that trading losses are claimed against other income to minimise tax payable. In some cases, losses can be set against income from an earlier tax year to recover tax already paid.

8 MAKE A GIFTEach year individuals can gift assets up to a value of 3,000 free of IHT and spouses each have their own exemption. If you have not used your allowance for the tax year ending tomorrow you can carry it forward to make IHT free gifts of up to 6,000 in the new tax year.

Gifts above this allowance may also be made IHT free provided the donor survives the gift by seven years. However, to protect against unexpected capital gains tax costs it might be sensible to give away assets that have fallen in value.

9 BE MORE GENEROUSIf you want to make gifts above the 3,000 annual exemption but are concerned about the seven year survival period, consider using the "normal expenditure out of income" exemption. This allows regular gifts to be made out of income entirely IHT free without the need to satisfy the seven-year period, provided the gifts do not reduce the donor's standard of living. There is no limit to the number of gifts that can be made out of income but compliance with HM Revenue & Customs rules is essential and anyone considering using this relief is advised to seek professional guidance.

10 DON'T LOSE OUT ON TAX-FREE SAVINGSEvery year millions of pounds are lost by taxpayers by not taking advantage of the full Isa allowance. Resolve to use your full allowance of 7,200 (3,600 cash) by setting up a regular payment from the start of the tax year rather than leaving it until the last minute.