Personal equity plans
As it happens, investors who were pressured into buying their full PEP allocation before the Budget have no reason to regret it. But it could easily have been the wrong decision if the Chancellor had confirmed the original plans to strip excess holdings of PEPs of their tax privileges. Unfortunately, everyone who waited now has to act fast to get their money in the right place before the tax year ends.
The new tax year starts on a Monday this year, so all transactions have to be completed by this Friday afternoon, although M&G, for example, is accepting requests for an application until 5pm on Thursday and accepting completed applications until 12.30pm on Saturday at its London, Birmingham and Manchester offices and until 5pm on Sunday from anyone prepared to drive to the Chelmsford office.
B&B deals and PEPs
Some investors who waited for the Budget will already have missed the boat. The Chancellor shut the door on some offshore trusts as early as 6 March, and investors who decided to delay their annual bed-and-breakfast shares deals will in future have to wait 30 days before they can buy back shares they have sold and count them as a new acquisition, for the purpose of establishing a base for calculating future capital gains.
They need not despair: investors who have not used up their annual PEP allowance can still sell shares to lock in tax-free capital gains up to the annual exemption limit and invest the proceeds in a PEP the following day. The money can be invested in a general PEP, but anyone who is particularly attached to shares in a particular company could buy pounds 3,000 worth in a single-company PEP or put pounds 6,000 into a self-select PEP. As the PEP is tax free the question of a future liability will not arise.
Venture capital trusts
Anyone who fears he or she could incur substantial capital gains liabilities in future under the new rules could consider investing in tax-free investments such as venture capital trusts, which are quoted shares exempt from capital gains and income tax and qualify for an upfront rebate of 20p in the pound if investors hold them for five years.
Tax planning for spouses
It is probably too late now for top-rate income taxpayers whose spouses pay tax at a lower rate to switch assets from the higher to the lower taxpayer in time for the current tax year, but a decision now would ensure that all dividends and interest next year go to the lower-rated spouse. Wealthy couples who want to take capital gains in excess of the annual allowance have probably left it too late to register a transfer of shares or property and sell the assets in time to exploit both allowances this year. But now is the time to establish transfers to maximise the opportunities to use both allowances in 1998/99, although the Inland Revenue will tell you that if the proceeds are handed back to the original owner the transfer would qualify as tax evasion.
Income paid gross
Savers who claim tax-free status and have investment income paid gross because the amount is less than their annual tax-free allowance are advised to check they are still registered if they have switched to a different account in the past year. A new form, R85, is required for each new account opened, and some banks and building societies do not automatically inform investors who move money between accounts. Check your statement to make sure you are still being paid interest gross: if not, you will have to fill in a new form R85, obtainable from banks and building societies, and reclaim it before the end of the tax year or lose it.
Inheritance tax planning
Anyone wealthy enough to give away up to pounds 3,000 a year, the maximum that can be given without incurring a potential inheritance tax liability, should consider doing so before the end of the year because any unused allowance can only be carried forward one year. There is always the possibility that the Chancellor might turn to inheritance tax next year. If you did not use the allowance in 1996/97 you and your spouse could each give away pounds 6,000 in the next few days, although you could only give them pounds 3,000 in 1998/99.
Individuals who are thinking of giving away assets in the hope of reducing or avoiding inheritance tax (known as potentially exempt transfers or PETs) by living for a further three, five or seven years should give the matter serious thought in the next few months. It is quite possible that PETs will be abolished or restricted next year. If so, gifts already made may be treated differently on the principle of no retrospective taxation even if they have not yet qualified for tax concessions.
Top-rate taxpayers can still get tax relief on pension fund contributions at 40 per cent on each pound, but anyone who can afford it should increase contributions this year or next, because tax relief could still be limited to the basic rate of 23p in the pound next year when stakeholder pensions come on stream.