Generation Game: Parents can help their adult children with their pension Picture: Cultura/Alamy
1SAVINGS Make sure you use your full £7,000 tax-free savings allowance – income and capital gains generated within an individual savings account (Isa) are free from UK income tax and capital gains tax (CGT).
2VCTSTaxpayers can get up to 30 pe
r cent income tax relief on investments in venture capital trusts (VCTs). Growth prospects can be good, but do come with a corresponding level of risk.
3MINIMISE YOUR CGT(Part 1) For the 2007-8 year, individuals can realise up to £9,200 of capital gains free of tax. It is therefore sensible to carry out a review of investment portfolios and, where appropriate, consider realising gains to mop up any unused allowance. Married couples should ensure they optimise their combined CGT allowances as each spouse can realise annual capital gains of up to £9,200 free of tax.
By transferring assets to a spouse prior to sale, a couple could achieve tax-free capital gains of up to £18,400 and save CGT of up to £7,360. If you are contemplating a large disposal, you should consider splitting it into two disposals immediately before and after the tax year-end, allowing you to double-up your annual exemption. Consideration should also be given to realising capital losses to set against gains on other assets in the same tax year.
4MINIMISE YOUR CGT(Part 2) In light of the capital gains changes effective from 6 April, 2008, you should consider whether a disposal before that date with a possible tax rate of 40 per cent, but with the benefit of taper relief and indexation relief (both of which are to be withdrawn on 6 April, 2008) will produce a lower CGT bill than on a disposal after 5 April, 2008 with the CGT being payable at the new flat rate of 18 per cent. The calculations required to decide on the best possible route can be complex and it is recommended that you seek professional advice. Where a disposal before 6 April to take advantage of taper relief or indexation is not possible, it may be possible to "bank" the relief. You should probably take professional advice on this.
5COMPANY SHARE OPTIONSCheck the vesting period for exercising share options and ensure that action is taken before the vesting period expires. If gains arising on the exercise of options are taxed under PAYE, then the employee must reimburse the employer for the PAYE within 90 days of the exercise date. Failure to do so will mean the PAYE paid by the employer is treated as a taxable benefit in kind, in effect creating a tax on tax.
6PENSION CONTRIBUTIONS You can now contribute up to 100 per cent of your relevant earnings to your pension fund, subject to the annual allowance, which currently stands at £225,000.
Contribution for the current tax year must be made before 6 April, 2008 as there is no "carry back" facility, which previously allowed contributions to be made up to and including 31 January following the tax year of claim.
7CHILDREN You can also fund pensions for your adult children up to 100 per cent of their earnings. This can provide a useful home for any planned gifts, not to mention a good start for a next generation's pension funds.
8PLAN AHEAD Following extensive changes to the pension funding rules from 6 April, 2006, pension funds valued in excess of the lifetime allowance of £1.6 million could be taxed on the excess at 55 per cent. There are ways in which the value of the fund can be protected against this tax charge, but only by submitting forms by 6 April, 2009. If you have funds near to, or over, the lifetime allowance you should take advice as you may not be able to make further pension contributions if you wish to protect your funds.
9GENEROSITY PAYSMaking annual gifts can reduce the value of an individual's estate for inheritance tax (IHT) purposes. Each year individuals can gift assets up to a value of £3,000 free of IHT.
Spouses each have their own exemption. Individuals who have not used their 2006-7 exemption can still take advantage of it, but they must do so before 6 April, 2008, otherwise it will be lost. This exemption allows gifts of £250 each year to individual beneficiaries free of IHT, but this exemption cannot be used in addition to the annual exemption in respect of gifts to the same beneficiary.
10CELEBRATE ROMANCE Parents can gift £5,000 and grandparents can gift £2,500 free of IHT on the occasion of marriage or entering into a civil partnership, which provides another means of reducing the value of an estate.
