Don't leave it too late to claim your tax reliefs this year!

As the new calendar year begins, we must not lose sight of the fact that a Tax Year is very soon going to draw to a close.

There is going to be a Budget in April, and the rumour factories which operate in the City and the corridors of power are all pointing to increases in taxes in one form or another.

It is unlikely that Income Tax will rise in a significant way, although the amount we pay in National Insurance could be changed to improve the Government's revenue, and by default, reduce our own. Certainly there will be other forms of taxation that will need to be tweaked in order to raise the sort of money that the Chancellor is thinking of spending on public services.

Inheritance Tax review almost certain

We are expecting a fairly far-reaching review of Inheritance Tax planning, since the Treasury lost a few significant cases last year where large amounts of tax were saved by clever trust schemes, etc. These acted within the law and therefore could not be contested. The Treasury now want to make sure these loopholes are closed with new law. This gives you a window of opportunity to make gifts to your dependants using Trusts which still give you access to income, as long as you act promptly and everything is set up before the law changes are announced in April.

It is important that you use the tools available to you for ensuring that you mitigate as much Inheritance Tax as possible. These include a properly drafted Will, which not only can reduce tax, but can make sure that your family is properly looked after and there is a minimum of delay in getting capital to them. There are a number of specialists working in this area who your Financial Adviser can put you in touch with.

This may be a very good time to move money that you perhaps already have invested, since it may have made losses in the nasty Stock Market environment last year, so there won't be too much Capital Gains Tax to pay if you want to reorganise the ownership of some of your capital.

Use your Capital Gains Tax reliefs to good effect

It may indeed be wise to look at your overall invested portfolio to see whether you can realise some of these losses to offset against gains that you have made during the year, perhaps from insurance company windfalls such as those paid out by Scottish Widows and others over the last few years. Remember also to make sure you have taken your maximum value of Loan Notes, if you still have them, within your Capital Gains Tax allowance, for the year, and if necessary switch some of the ownership of the Loan Notes to a spouse so that you can get twice the money out.

Get your 2001 ISA while stocks last

As usual, you should ensure that you are making the best use of your ISA allowances so that you are making some good tax free investments.

Something that may have been missed by investors who made investments in single company PEPs over the years, is that the law has changed and now you are allowed to transfer these monies into more general funds to diversify the risk, and perhaps take advantage of some better performance. Many people are under the impression that they are stuck with the single company PEPs that they currently hold - this is no longer the case.

Pension Planning

Maximise your pension planning where possible, as every little bit helps. This year you can even get tax relief on rental and savings income by using a pension scheme.

With the advent of the new Stakeholder system it is very inexpensive to invest money in pensions, and the schemes are relatively flexible. Don't forget that you can now put away £3,600 per Tax Year for children and non-working spouses. Tax relief is automatic so the cheque you pay is £2808 - almost £800 tax back straightaway!

New rules mean that even if you are in your employer's Occupational Scheme, as long as you are earning under £30,000, you can take advantage of the new Stakeholder Personal Pensions upto a maximum contribution of £3600 gross per Tax Year. You may already be funding AVC schemes or Free-standing AVC schemes, to a lesser degree than this, and it is therefore advisable to consider stopping these and paying money into a Stakeholder plan instead which will give you tax free cash at retirement, something that is not available from AVCs and Free-standing AVC schemes set up after 1987.

Thinking of selling your business?

For anyone who is thinking of retiring and selling a business, timing of the arrangement could be crucial, whether you do it in this Tax Year or next, as this may have an affect on the net value that you receive. Take careful advice from your accountant and cover all the options, but start asking how best to proceed now, as there are only a few weeks to the end of the Tax Year.

Venture Capital - excellent tax reliefs

Another good way of saving tax is to look at Venture Capital Trusts (VCTs) which we have written about before in this column, as these give you 20% tax relief on contributions, and can be used to defer Capital Gains Tax. Markets fell back so far last year that many VCT schemes are extremely good value at the moment, and those who are brave enough to go into the markets, should consider them as a possible home for some of their money for this Tax Year.

In conclusion, my message is that despite the current economic climate and the fact that April still seems a little way away, timely advice from your chosen IFA can significantly reduce your Tax Bill for this year, or perhaps for future years. Don't leave it too late, simply give one of us a call and we will sit down together to discuss things in more detail.

Please contact us for any specific tax planning requirements you may have.