Tax Factor
17 March 2011
Use it or lose it – making the most of your 2010-2011 tax breaks
In the aftermath of the rush to meet the 31 January personal tax return submission deadline it is all too easy to lose sight of the fact that the end of the tax year is only a few weeks away. In this article we take a look at just some of the actions you might need to take before 5 April 2011 to avoid losing some valuable tax saving opportunities.
Individual Savings Accounts (ISAs)
If you have not used all of your ISA limit for the 2010/2011 then remember that you cannot carry this forward to next year - it must be used by 5 April 2011 or be lost for ever .
Up to £5,100 can be subscribed to a cash ISA and up to £10,200 to a stocks and shares ISA, provided the overall limit for the year, which is also £10,200, is not exceeded.
Any individual aged 16 or over can have cash ISA but holders must be aged over 18 to have a stocks and shares ISA.
Capital Gains Tax
Although losses made on the disposal of assets can be carried forward and set against gains made in future years the same is not true of the Annual Exemption, currently set at £10,100. If you are considering disposing of an asset in the next few weeks and expect to make a gain then you may wish to consider whether you should aim to do this before 6 April 2011 to use this year's exemption, or, all other things being equal, delay the disposal until after 5 April 2011 to make use of your exemption for 2011/2012.
If you expect to sell at a loss then you may also want to think carefully about the timing of your sale. Losses can be carried forward but not back so if you have already made gains in excess of £10,100 this year then it may be advantageous to ensure you crystallise your loss before 6 April 2011. On the other hand, if your net gains to date are already below the Annual Exemption, another loss in 2010/2011 may not be very helpful to you so it may be worth delaying until after the end of the tax year in order to bring your loss into 2011/2012.
Finally, if you have a managed portfolio do make sure as 5 April approaches that you remember to make your investment manager aware of any gains or losses that have arisen on assets held outside of the portfolio so that these can be taken into account when considering any sales they may undertake for you for you as the tax year comes to a close.
Inheritance Tax
An individual can make annual gifts of up to £3,000 which will not be taken into account for Inheritance Tax purposes. This exemption can be carried forward if it is not used - but only for one tax year. So if you did not make any gifts at all in the year to 5 April 2010 you can make up to £6,000 in the current tax year. But don't delay, as by 6 April 2011 your annual gift allowance for 2009/2010 will be lost forever.
Pension contributions
Over the last few years there have been a number of changes to the limits on pension contributions and the tax relief available on these. The latest rules, expected to come into effect from 6 April 2011, were outlined in the New Year edition of the Tax Factor (‘Changes to the pension contributions from April 2011').
In place of the quite complex restrictions on higher rate tax relief proposed by the previous government we now have an annual limit of £50,000 above which not even basic rate tax relief will be given. The £50,000 limit applies only from 6 April 2011 but individuals will be deemed to have had a £50,000 allowance for the three years 2008/2009, 2009/2010 and 2010/2011 (even though the complicated rules in place for those years may have imposed a different limit at the time).
If this £50,000 limit was not fully utilised in those years then the balance can be carried forward and used in 2011/2012 - but only if the individual was a member of a registered pension scheme during each of those three preceding years.
It is too late for 2008/2009 and 2009/2010, but you might want to consider joining a pension scheme before 5 April 2011, even if you only make a token contribution in this tax year, in order to secure the availability of the balance of this year's £50,000 for the future - assuming of course that the proposed new rules come into effect as announced.
If you are planning to make significant pension contributions over the next few weeks then you will need to consider carefully whether you should do so before or after 5 April 2011 in order to secure the maximum available tax relief. Much will depend on your individual circumstances as factors such as your previous pattern of contributions, level of earnings, employer's contributions and pension input periods will come into play and professional advice is recommended.
For further advice on this, or any of the topics mentioned above, please contact any Wilkins Kennedy office.
