Tax Year-End Planning 2010

As we approach the end of a tax year, it is a good time to review your financial health and take stock of your tax and financial affairs.

As always, it is important to ensure you are not paying more tax than you should and that you are maximising all available tax breaks.

From the 6th of April 2010, the rate of income tax payable on taxable income increases from 40% to 50% for income of more than £150,000.  Some individuals with income over £100,000 will suffer 60% income tax on part of their income.  However, there are a number of ways to limit your exposure.

Advance your salary

If possible, income sceduled to be received after 5 April 2010 can be brought forward to the current tax year while the trop rate of income tax is still 40%.  This may be particularly advantageous with regard to bonus payments and dividends from private or family companies.

Save, save, save

Reasearch has shown that taxpayers are potentially losing out each year by not taking advantage of their full Individual Savings Accounts (ISA) allowance.  It is recommended that you consider making full use of your tax savings allowance of £7,200 for 2009/10.  For individuals aged over 50, the limits increased from the 6 October 2009 allowing £10,200 to be invested this tax year of which £5,100 can be into a "cash ISA".

Generate capital rather than income

As the top rate of income tax is currently 40% versus a capital gains tax rate of 18%, tax savings may be possible by switching to investments whcih generate capital rather than income.  In this current climate most investment values are low so diversification in this way may be possible without incurring capital gains tax.  The capital gains tax rate may, however, be increased from 6 April 2010.

Don't forget retirement planning

Individuals can now contribute up to 100% of their relevant earnings to their pension fund, subject to the annual allowance which is currently £245,000.  Contribution for the current tax year must be made before 6 April 2010 as there is no 'carry back' facility which previously allowed contributions to be made up to 31 January following the tax year claim.  There are, however, new rules aimed at restricting tax relief on pensions for high earners.

The ideas outlined above are only a few of the options you may have to minimise the amount of tax you pay this year.

As always, Haines Watts will be able to offer advice and guidance to help you make the right deicisions.  If you require further information or have any queries, please contact Professor Alex McDougall, our Senior Tax Partner, on 0131-625-5151 or email abmcdougall@hwca.com.