Top ten tips: make use of allowances

WITH less a month to go until the end of the tax year, time is running out to make the most of your tax allowances.From taking advantage of the small rise in capital gains tax allowance to grasping the opportunity to pay for the first time into a Junior Isa, Carrie Heron, financial services expert at Brewin Dolphin in Edinburgh, offers her top tips on tax moves to consider.

Boost your pension

Speak to your financial adviser to check that you have maximised your contributions for the current tax year. Remember, the annual allowance has been reduced to £50,000 gross a year, though the re-introduction of “carry forward” may allow higher premiums to be paid.

Fix some protection

The lifetime allowance is being lowered from £1.8 million to £1.5m from 6 April, 2012. If you wish to benefit from the £1.8m limit it is possible to apply to HM Revenue & Customs to be granted “fixed protection”. There are conditions attached to this protection application, so take time to speak to an independent financial adviser or financial planner to see if applying for protection would be beneficial to you.

Family planning

Consider other family members’ pension provisions. There may be scope to contribute to a spouse’s pension or that of your children or even grandchildren. Tax relief is available on contribution to a child’s pension, which can be opened on a child’s behalf by parents, other family or even friends.

Tax-efficient savings

Make sure that you have invested the full allowance into your individual savings account (Isa) for the 2011-12 tax year. The current Isa investment limits are £10,680 for a stocks and shares Isa and £5,340 for a Cash ISA. With inflation eating away at the returns on savings accounts, the tax-free status of Isas is more important than ever.

Junior Isas

Junior ISAs were also launched in 2011. Up to £3,600 can be invested on behalf of a child, assuming they do not have a child trust fund. Your children or grandchildren may be entitled to such an account. The account matures at 18, however, meaning control of the money passes to the beneficiary, although it can be switched into a normal Isa.

Child trust funds

If you took out a child trust fund for a child or grandchild before they were scrapped by the coalition government you could consider investing some capital on their behalf. Currently the maximum amount which can be invested is £3,600 a year.

Capital thinking

For the current tax year, individuals have an exemption on capital gains tax (CGT) for gains up to £10,600. If you have an adviser or investment manager make sure they have details of all of your share portfolio investments so they can utilise your annual Capital Gains Tax (CGT) allowance.

Scheming to help start-ups

Enterprise Investment Schemes (EIS) are designed to help smaller high risk trading companies to raise finances, whilet offering tax relief to investors who purchase new shares. Currently tax relief is granted at 30 per cent, up to a maximum investment of £500,000. There are other tax benefits relating to inheritance and capital gains tax.

Transfer window

A simple and effective way for married couples or civil partners to cut their tax bills is to make full use of each other’s tax allowances. If you pay higher rate tax but have a spouse who is a nil or basic rate tax payer you could consider restructuring and transferring your assets to utilise this and reduce your own tax liability.

Inheritance tax

With inheritance tax charged at 40 per cent on anything you leave over £325,000 when you die gifting small lump sums over the years can reduce the tax burden. You can gift £3,000 in each tax year without attracting tax.