If you do have tax breaks you want to take up the emphasis should be on acting now since most of the ploys will take some arranging. Some PEP companies, for example, may require your money before the end of March. Here are some tips from accountants and investment firms: If you are a member of an employer's pension scheme consider making additional voluntary contributions (AVCs) either into the employer's AVC plan or into an FSAVC plan run by a separate pension company to increase the size of your pension. Your annual contributions to the main scheme plus any AVC are limited to 15 per cent of earnings, so if you pay 5 per cent of your salary into the main scheme you can put a further 10 per cent into an AVC. These contributions attract tax relief at your highest rate of income tax, but if you do not use up these allowances before 5 April you cannot carry them forward into the new tax year. If you have a personal pension plan you can carry forward unused tax reliefs for up to six years.
PEPs, like Tessas, mean tax-free returns for your savings. You can only have one Tessa at any time and you need to tie up your savings for five years for the interest to be tax-free. But you can take out one pounds 6,000 PEP and one pounds 3,000 single-company PEP each tax year. However, investors looking to use up their allowances are faced with the problem that the stock market could be due to fall. Investing now in something that might lose you money short term is not enticing. Fortunately there are ways round this problem, in particular phased investment (see page 17).
PEPs aside, you can make up to pounds 6,300 of capital gains (profits on shares, for example) free of tax. Furthermore, only gains above inflation over the period you held an investment count towards this tax-free limit. Importantly, though, you cannot use the allowance to wipe out or reduce potential tax liabilities unless you crystallise those gains, and the allowance itself cannot be carried forward. But you do not have to sell your favourite shares to use it up; "bed-and-breakfasting" will allow you to realise gains while continuing to hang on to investments. See a stockbroker about this.
Consider giving profit-rich investments to your spouse so he or she can use their CGT allowance, and, if your spouse is in a lower income tax band, transferring savings to reduce tax.
If you have a company car and are close to having done either 2,500 or 18,000 business miles in the past year, then try to get over these thresholds as crossing reduces the value of the benefit on which you pay tax.
You can make gifts of up to pounds 3,000 every year and be sure that these will fall outside of your estate for inheritance tax (IHT) purposes when you die. You can still use any unused allowance from 1995/6 if you first use your 1996/7 allowance in full, so doubling your IHT-free gifts to pounds 6,000. Consider also making larger gifts as under current rules if you survive the next seven years these potentially exempt transfers become IHT-free. This is an area on which it might be worthwhile taking advice as inheritance tax allowances are something a Labour government might restrict.
Make sure you have reported all income and gains for 1995/6 by the end of this tax year as otherwise the Revenue reserves the right to charge you penalties (as well as interest) if they catch up with you.
Deloitte & Touche, the accountants, has a free booklet, 'Personal Tax Planner 1997'. Call Rachel Gristock on 0171 303 5040. ShareLink, the stockbroker, has a free factsheet, 'How you can beat the tax year deadline'. Call 0990 810 810.Reuse content