With the end of the tax year looming, I am keen to invest my money in tax-efficient investments and ensure I am tax-efficient for the benefit of myself and my family. What do I need to be aware of?
All taxpayers should try to make full use of the tax- efficient investment choices and tax benefits that remain.
The annual individual savings account allowance has been for many the first point of call to benefit from the capital gains tax and income tax benefits. You have to be aged 16 or over to open a cash Isa or 18 or over for a stocks and shares Isa. You also have to be resident and ordinarily resident in the UK for tax purposes.
Since April 6, 2010, those eligible can save up to £5,100 in a cash Isa and the remainder of the £10,200 in a stocks and shares Isa with either the same or another provider.
With the introduction of anti-forestalling measures concerning pension contrib-utions in the new tax year, you need to be aware that from April 6, 2011, the annual allowance will reduce to £50,000. This limit includes employer pension contrib-utions as well as contributions by the individual. Any contributions over the limit are taxable on the individual. You can make a sizeable pension contribution this week and still benefit from the £255,000 annual allowance.
The first £10,100 of gains made in 2010/11 are capital gains tax-free, being covered by the annual exemption. Note that a husband and wife both have their own annual exemp-tion, as indeed do children. A transfer of assets to your wife or even your children may enable them to utilise their own CGT annual exemptions.
We will look at rebalancing your portfolio as the volatility in markets continues and to sell some investments show-ing a profit to use the annual exemption.
Where you sell stock or investments you wish to continue holding, I would recommend that your non-working wife repurchases the asset through an Isa for this tax year and the next, investing up to £20,400 in her name.
I may also recommend the sale of loss-making investments which can then be offset against any gains made. Rem-ember, once the tax year has passed, that year’s annual CGT exemption limit has gone.
As for inheritance tax, you can make gifts to others to remove value from your estate.
You have talked about transferring your wealth onto your children and you should making full use of your annual IHT £3,000 exemption. As you did not use this in the last tax year (2009/10), this unused relief can be utilised now, provided that you first use your annual exemption for this tax year (2010/11).
You can also gift £250 to as many different people as you like; and as much as you wish to gift out of your income, provided it does not affect your lifestyle. All gifts will be deemed potentially exempt transfers which you will need to survive for seven years for them not to be brought back into your estate.
You own a factory that qualifies for business property relief. As you wind down your working commitments, you can gift the business into a discretionary trust for the benefit of your children or partners, normally without an IHT liability arising. I recommend you consider this action as the rates of business property relief may reduce, or the commercial property later failed to qualify for business property relief for whatever reason.
Kim North (Kim@techandtech.co.uk) is managing director of Technology & Technical