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Ensure clients have used all the available tax exemptions

With the end of the tax year approaching, it is important to ensure clients have used all the tax reliefs and exemptions available to them. Here are 10 tax-saving measures worth reviewing before April 5.

  • Make full use of inherit-ance tax reliefs – Individuals can gift £3,000 a year with no IHT consequences. If the exemption was not used in 2009/10, it can be brought forward to the current tax year, effectively increasing the amount that can be gifted before April 6, 2011 to £6,000.
  • Gift regularly – Although not tax-year-end-sensitive, regular gifts out of income are free from IHT, even if death occurs within seven years. This exemption has no monetary limit but the gift must be part of a regular pattern that leaves the donor with sufficient income to maintain his/her usual standard of living.
  • Consider bigger gifts – No changes are anticipated but it is always wise, with a Budget looming, to execute planning sooner rather than later. Consideration should be given to making bigger gifts direct to individuals or by executing an absolute trust, taking advantage of the potentially exempt transfer regime.
  • Nil-rate band planning – With the nil-rate band frozen at £325,000 (£650,000 for a married couple/civil partner-ship), some might find their assets are growing at a faster rate than the nil-rate band. Married couples and civil partners may therefore want to reconsider lifetime nil-rate band planning with discret-ionary will trusts to maximise tax savings on second death.
  • Use combined personal allowances – Basic-rate tax-paying couples should ensure they each have enough income to make full use of combined personal allowances and basic-rate tax bands of £43,875 each for 2010/11 and £42,475 for 2011/12.
  • Cut net income – Charitable giving and individual pension contributions should be considered to reduce adjusted net income and preserve personal and age allowances. Individual pension contrib-utions are deducted from income in testing whether it exceeds either the £22,900 age allowance threshold or the £100,000 higher income limit above which the personal allowance starts to reduce.
  • Reduce income tax liability – Pension contributions and charitable donations can also be effective in reducing the income tax liability of a higher or additional-rate taxpayer, facilitating savings at 40 per cent – or more if relief is available at 50 per cent.
  • Consider tax-exempt investments – Consider investing in tax-exempt investments such as Isas up to the maximum investment limits of £10,200 for 2010/11 and £10,680 for 2011/12.
  • Use the annual capital gains tax allowance – Every individual, including children, is entitled to an annual CGT allowance – £10,100 for 2010/11. Unused allowance cannot be carried forward and it may be prudent to crystallise gains, to the extent of any unused allowance, by disposing of chargeable assets by April 5, 2011. Married clients could also consider making an outright transfer to their spouse/civil partner before a sale to use both annual CGT allowances and save up to £2,828 in tax.
  • Check if unused CGT losses are available from previous years – If capital gains would otherwise exceed the annual CGT allowance for the current tax year, see if unused CGT losses are available from earlier years or if unused trading losses are likely to be available. Alternatively, where investments have fallen in value, it may be beneficial to crystallise CGT losses on shares and mutual funds by disposing of the shares or units pregnant with a loss by April 5, 2011.

Marcia Banner is tax and trust manager at Scottish Widows

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