The tax year-end approaches

With the prospect of tax cuts increasingly distant, year-end tax planning has become more relevant than ever in cutting your contribution to the Exchequer.

Chancellor George Osborne’s past two Budgets have introduced a wide range of tax changes, some of which have yet to take full effect. These changes mean that the checklist for year-end tax planning in 2011/12 is not the same as in previous years.

The list you need to consider before the Chancellor rises to speak includes:

Pensions

The start of the new tax year on 6 April will see several important revisions to pension law taking effect, as we explain in ‘The pensions revolution continues’. However, many changes took effect last April and some are now part of year-end planning. For example, the reduced £50,000 annual allowance and the new carry forward rules both apply in 2011/12 and could impact on your year-end pension contributions.

Rumours that the Chancellor would end higher rate (and additional rate) tax relief on pension contributions re-emerged in the run up to the Autumn Statement. Just in case Mr Osborne is unable to resist the £12 billion a year extra income this time around, it would be a wise precaution to make any planned 2011/12 pension contributions before Budget Day (21 March).

Individual savings accounts (ISAs)

Your 2011/12 ISA contribution limit is £10,680, rising to £11,280 from 6 April. Maximising your ISA investment will usually make sense because:
  • Dividends and income from fixed-interest securities held within a stocks and shares ISA are free of personal UK tax.
  • Interest earned on deposits in a cash ISA are also UK tax-free. However, the returns on offer reflect the fact that base rate shows very few signs of moving above 0.5%.
  • Gains made within ISAs are free of capital gains tax (CGT).
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Inheritance tax (IHT)

The £325,000 IHT nil rate band is frozen until April 2015, making it all the more important to use your annual IHT exemptions. The main £3,000 annual exemption can be carried forward, but only to next tax year (2012/13), and then can only be claimed once the 2012/13 exemption has itself been used up.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Services Authority does not regulate tax advice.