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End of Year Tax Planning

Posted by: edwinsmith on March 23rd, 2010

INCOME TAX

Whilst personal allowances, the basic rate of 20% and higher rate of 40% are not changing in 2010/11 there are changes for individuals with income over £100,000.  If your income is over £112,950 your personal allowance will be reduced to nil.  If your income is between £100,000 and £112,950 then your personal allowance will be restricted at the rate of £1 for every £2 of income above £100,000.

For individuals with income over £150,000 there is a new additional rate of tax of 50% for income other than dividend income and a new dividend additional rate of 42.5% (as opposed to 32.5%).

Any owner managed company whose shareholders may be facing the 50% rate of tax or a reduction in their personal allowance, may like to consider paying dividends prior to 6 April 2010 to take advantage of the current lower tax rates.  Similarly any business with employees earning similar levels of income may wish to consider bringing forward any bonus payments to the current tax year.

Married couples and civil partners should review their positions as an income balancing exercise may produce tax savings.

Owner managed businesses should consider their cash flow requirements as withdrawing capital and reinvesting it as a loan to give tax relief could be beneficial. Careful structuring is required so please contact us if you wish to discuss this.

CAPITAL GAINS TAX

The annual exempt amount for individuals for the current year is £10,100 and gains above this amount are taxed at 18% in the current year.  Have you used your annual exemption?  The exempt limit and rates for 2010/11 have not yet been set.

INHERITANCE TAX

The Inheritance Tax annual exemption still stands at £3,000 per individual and can be carried forward for one year only. If an individual has not made any gifts since 5 April 2008 then they have an allowance of £6,000 to use before 6 April 2010. For a married couple or civil partners who have made no gifts they have an exempt amount of £12,000 between them.

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

The amount savers aged 50 or over in the current tax year was increased to £10,200 this year.  Any saver born on or before 5 April 1960 can invest the full £10,200 in a stocks and shares ISA with one provider or up £5,100 can be saved in a cash ISA with one provider with the remainder being saved in  a stocks and shares ISA with either the same or another provider.  For savers who were born after 5 April 1960 the limit is £7,200 in a stocks and shares ISA with up to £3,600 being saved in a cash ISA.

From 6 April 2010 the higher limit of £10,200 applies to all savers with £5,100 maximum into a cash ISA.

Please contact us for your end of tax year planning advice to discuss your individual circumstances.

This blog news page is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this web page.

Filed under: Tax