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Winter 2003 Bulletin

THE END OF THE TAX YEAR

It is not too soon to start thinking about the steps which can be taken, before the end of the tax year – Monday, 5 April 2004 – to reduce your income tax and capital gains tax liabilities. They include:

·              Using your 2003/04 Individual Savings Account (ISA) investment allowance of £7,000 (£3,000 for 16- and 17-year-olds).

·              Making gifts to utilise the 2003/04 inheritance tax annual exemption. The annual allowance is £3,000 for each donor (so that husband and wife have separate allowances) and if the 2002/03 allowance was not used, it can be brought forward to 2003/04, exempting gifts to a total of £6,000. The annual exemption can be a simple and sure way of reducing inheritance tax liabilities. For example, gifts of £3,000 a year for ten years will produce an inheritance tax saving of £12,000.

·              Managing capital gains tax liabilities, by realising losses (to reduce net chargeable gains) or by realising gains (to utilise the annual exempt amount – currently £7,900 – and any available losses). Straightforward bed-and-breakfasting is no longer effective for tax purposes, so please contact us for individual advice on the best stratagem for your own circumstances.

·              If you are an employee or company director, making an Additional Voluntary Contribution (AVC) to your employer’s pension fund, or a ‘Free-Standing’ AVC (FSAVC) to an independent pension provider, which will qualify for tax relief in 2003/04. But here a point to watch is that employees earning up to £30,000 a year – other than controlling directors – are able to contribute up to £3,600 a year to a stakeholder or personal pension scheme while remaining a member of their employer’s occupational pension scheme: stakeholder pensions will probably offer lower charges than AVCs or FSAVCs and will allow the contributor to take 25 per cent of the pension fund as a tax-free retirement lump sum.

Finally, following changes introduced by the Finance Act 2003, group life policies of the kind often used by partnerships for succession planning must be reviewed before 5 April 2004, and if necessary amended, to ensure that no unexpected tax charges arise when a claim is made. Your insurance broker, or the life assurance company itself, should be able to advise you.