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Deloitte UK Offers Year-End Tax Tips

Thursday, March 11, 2010

Tax advisory firm, Deloitte has urged UK taxpayers to avail of all outstanding available tax reliefs, from income tax, capital gains and inheritance tax, to reduce their individual tax liability, before the start of the next fiscal year.

Patricia Mock, a director in the private clients practice at Deloitte says:

“The current tax year is fast coming to a close, now is the last chance to review your position to uncover any un-used allowances or other possible benefits, before April 5. It is also a good time to consider possible actions to mitigate the 50% tax rate which will apply from April 6, 2010.”

Experts in Deloitte’s private clients practice have provided a few tips to help taxpayers get started but have urged the use of expert advice.

With regards to personal allowances, Deloitte has advised:

  • Maximising income tax rate bands – make a gift to a spouse to make use of his or her personal allowance (GBP6,475) and basic/lower rate band (GBP37,400) for 2009/10. Taxpayers with an income over GBP150,000 will soon pay tax at 50%, a gift to a spouse whose top rate of tax is 40% may also be effective.
  • Capital gains tax (CGT) – make use of the annual exemption (AE) for 2009/10. This is GBP10,100 for each individual, including children. If already used, you can consider delaying the disposal until 2010/11.
  • Inheritance tax – make use of the AE for 2009/10 of GBP3,000 each for husband and wife, plus any unused balance from 2008/09, and the small exemption of GBP250 in relation to individuals. Also, make use of this tax year’s GBP325,000 nil rate band.
  • Individual Savings Accounts (ISAs) – make use of the yearly ISA allowance: GBP3,600 for a cash ISA (rising to GBP5,100 from April 6, 2010) and GBP7,200 for a stocks & shares ISA (rising to GBP10,200 from April 6, 2010). The increased limits already apply for those over 50.

With regards to investing in pensions, Deloitte has advised:

  • Pension contributions - consider making a pension contribution. However, with the many changes to pension tax legislation over the last few years, great care should be taken, as higher rate relief may not be available.
  • Lifetime allowance – for the 2009/10 tax year, the limit on the value of retirement benefits that you can accumulate in a UK registered pension scheme before tax penalties apply is GBP1.75m.
  • Higher rate tax relief restrictions – from April 6, 2011, higher rate tax relief on pension contributions will be gradually phased out for individuals with gross incomes of at least GBP150,000, so that for those with gross incomes of more than GBP180,000 tax relief will be restricted to the basic rate only.
  • Anti-forestalling measures were introduced with immediate effect from April 22, 2009, imposing a special annual allowance charge in 2009/10 and 2010/11 on certain contributions in excess of an individual’s normal ongoing savings pattern. From December 9, 2009, the level of relevant income was dropped to take effect from GBP130,000.
  • For those making contributions less frequently than quarterly, the special annual allowance may be up to a maximum of GBP30,000. For example, an individual who made a relevant single one-off contribution in 2006/7 of GBP75,000 will have a special annual allowance for 2009/10 and 2010/11 of GBP25,000 (i.e. GBP75,000/3).
  • Those who have income of less than GBP130,000 are not affected by the new rules and continue to get higher rate relief on pension contributions. People with income of between GBP100,000 and approximately GBP113,000 who will suffer a marginal rate of 60% as their personal allowances are withdrawn would find pension contributions particularly tax efficient.

On mitigating the effects of the introduction of the 50% tax rate, Deloitte has advised:

  • Accelerating income to the 2009/10 tax year will mean that it is taxed at 40% rather than 50%, albeit with a cash flow disadvantage of having to pay tax one year earlier.
  • Closing a bank account in 2009/10 will mean that interest becomes payable in that year.
  • Exercising unapproved share options will trigger an income tax charge in 2009/10.
  • Deferring deductions to 2010/11 will have the same effect. However, this may present difficulties for those affected by the anti-forestalling provisions. For example, an individual with an income in 2010/11 between GBP100,000 and approximately GBP113,000 will have a marginal rate of 60% due to the tapered withdrawal of the personal allowance, so deductions of this nature are particularly beneficial.
  • The use of wrappers, such as investment bonds, as they allow 5% withdrawals made annually without triggering a charge to tax, and the bond can be cashed at a later date when the individual is no longer a 50% taxpayer.”