Race to the end of the tax year 2010/2011

The ‘starter’s gun’ seems to have been fired and the end of the tax year (05th April) dash seems to have started.

For most financial planners, this is the busiest time of the year with many clients and enquirers focussing on their allowances and effective ways of using them for the tax year 2010/2011 and thinking about the new (and in many cases changed) tax allowances in 2011/2012. 2011 is no different judging by the interest we are experiencing in all things financial planning.

In recent blogs I have covered many of the aspects of financial planning that our readers will want to consider at this time of year. However, as a reminder and ready-reckoner of some of the points that many are contacting us about at this time, you will find an example list below of the points being raised by many:

Individual Savings Accounts/ ISA’s:

As noted in my February blog, the ISA allowance for this tax year is £10,200 in total: This amount can be fully invested in equity type investments (such as stocks/OEICs/Unit Trusts), or, if you prefer, you can put up to £5,100 in deposit/ cash holdings, still leaving a balance of £5,100 available to go into investments. This is usually an annually renewable allowance and you can use your new ISA allowance each year with different providers if you prefer. (ISA rule restriction of one provider of each option per annum).

In the new tax year (2011/2012), the ISA allowance is being increased to £10,680 in total.

Pension Contributions:

Pensions are becoming an ever more topical subject at the moment. With Lord Hutton’s in-depth report yesterday on the ways forward for Public Sector pension schemes and ‘Unisex’ annuity rates being proposed by European Law from December 2012, the next few years are going to busy.

The regulation for ‘Anti-Forestalling’ limits (currently £20,000)will also end in this tax year, with a new ‘ceiling’ for pension contributions of £50,000 being introduced (along with a new additional ‘carry-back’ facility) and the need to purchase an annuity at any point in the future will also end in April 2011.

There are also significant changes proposed to the way that benefits could be made available under Income Drawdown type plans, as detailed in a previous 2011 blog. Pensions, in all their formats, are certainly a topic that I would recommend any investor or retiree/potential retiree takes individual advice on to ensure that they get the best from their financial planning decisions.

Capital Gains Tax/ CGT:

I always think this is a worthy allowance which is a missed opportunity for many. Each individual is allowed to make a gain of £10,100 tax free in this tax year from assets such as Stocks and Shares or Unit Trusts/ OEIC’s. If you have a gain within a portfolio that is worth taking, and you should seek advice on this point, then review your investment before the end of the tax year. If there is a significant gain, you could consider splitting the gain by selling part of an investment holding in this tax year and then using next year’s allowance early in the new tax year (in this example 2011/2012). The current flat rate charge for CGT is 18% and this rises to a flat rate of 28% for higher rate taxpayers.

Bed and ISA-ing:

In line with the use of your Capital Gain Tax allowance, it is possible to combine to allowances. In the example above, if you sell Stocks and Shares, you are not able to re-buy the same asset within 30 days without losing the tax benefit. However, if you sell Stocks and Shares or units in a portfolio and re-buy the same asset straight away under the shelter of an ISA (up to the maximum allowance of £10,200 in this tax year 2010/2011) this is allowed. For those who do not want to invest additional cash into an ISA, but do have a portfolio of assets, this may be an effective way of using up these valuable allowances.

Annual Gift Allowance:

It is possible for an individual to gift away £3,000 in a year and for this gift to fall outside their estate from the date of the gift. If they did not use last year’s allowance, they can go back one year and gift away a further £3,000, a total of £6,000.

Many parents and grandparents contemplate the benefit of this allowance each year. Some, with surplus income, also consider gifting further amounts away, although I would recommend that full professional advice is sought on this issue before proceeding.

Child Trust Funds/ CTFs:

The maximum contribution that can be added to these CTF plans by, as examples, parents and grandparents is £1,200 in total in the year. This may be worthwhile to build benefits for the child owner in the future.

Summary

This is not an exhaustive list, but gives a reasonable indication of what many will be considering as the race to the end of the tax year moves into top gear.

As I have noted in previous blogs, we are all different and your ongoing financial planning strategy will be individual to your needs, such as the use of annual tax allowances. Therefore, this article should not be seen or used as individual advice.

Seek Independent Financial Advice (IFA) for your circumstances. Churchouse Financial Planning Limited can be contacted in Guildford, Surrey on (01483) 578800.

Keith Churchouse

Director of Churchouse Financial Planning Limited, Guildford, Surrey.
ISO22222 Certified Financial Planner & Chartered Financial Planner

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority. The Financial Services Authority does not regulate taxation advice.

Churchouse is a Trademark of Churchouse Financial Planning Limited