Deadline looms for making the most of your allowances

WITH just a month until the end of the financial year and the introduction of the new 50 per cent income tax rate for high earners, tax is unlikely to stray far from the headlines.

That only serves as a reminder that time is running out to identify any opportunities to minimise taxes and maximise wealth for this year.

The fiscal landscape is constantly changing and year-end tax planning is always affected by some level of uncertainty. What we do know, however, is that whatever the outcome of the general election, we may well be faced with a higher tax environment for some time to come. The final months of the current tax year, therefore, should be viewed as an opportunity to review your affairs and ensure that you take advantage of all possible reliefs and exemptions. Here are some of the main areas to look at:

1 INCOME TAX SAVINGS FOR COUPLES

In certain circumstances, couples can save tax by switching income from one spouse or partner to the other. You should aim to use both individual's personal allowances (6,475 in 2009-10) and minimise any higher rate tax.

You could transfer investment income by switching ownership of the asset that produces it, although there may be capital gains tax (CGT) to pay if you are not married or in a civil partnership. Alternatively, you could simply transfer savings into your joint names so that half the income is taxed on each partner.

2 IN BUSINESS

If you are in business, you can pay a non-earning partner a salary on which you will then get tax relief.

You will not need PAYE records if the salary is below the National Insurance contribution (NIC) limit of 412 per month in 2009-10. You can also pay an employer's contribution to your partner's personal pension plan. There is no tax or NIC on the payment itself and it should be an allowable business expense.

If you operate your business as a company in which you both have shares, you could consider paying a dividend before 6 April, 2010. If the gross income (including the tax credit) falls into the basic rate band (43,875 including personal allowance), there will be no additional tax to pay on the dividend.

You could even gift shares to your spouse or civil partner shortly before paying the dividend, provided you make a genuine transfer of ownership with no strings attached.

There is no CGT on transfers between spouses and civil partners.

3 CGT PLANNING

Most individuals have an annual CGT exemption which in 2009-10 makes the first 10,100 of gains free of tax. Gains above this level are taxed at 18 per cent, unless the disposal qualifies for entrepreneur's relief, where the rate of tax is 10 per cent. Entrepreneur's relief is available in respect of gains made on the disposal of all or part of a qualifying business.

You should normally aim to use your annual CGT exemption by making disposals before 6 April. The annual exemption cannot be carried forward or transferred.

4 INHERITANCE TAX (IHT)

Gifts totalling up to 3,000 in a tax year are exempt from IHT. If you made no gifts to use the exemption in 2008-9, then you can make IHT-free gifts of up to 6,000 before 6 April, 2010. Regular gifts out of excess income can also be exempt, but you need careful documentation to prove that you make the gifts from income rather than capital.

Always remember to take professional advice before entering into any tax-mitigation strategies.

• Ronnie Ludwig is a partner in Saffery Champness Chartered Accountants