Tax Bites

Married Couples - Are you using your personal tax allowances/rates to their best effect? If your spouse has less income than you, perhaps you should consider transferring some of your income producing assets to them. For example, Mr A pays tax at the basic rate and has gross building society interest of £1,000 whilst Mrs A has no income. The transfer of the account to Mrs A will result in a reduction in tax of £200.

Each spouse is entitled to a Capital Gains Tax exemption currently £8,200 (£7,900 for 2003/2004) so that it is worth thinking about equalising any assets held to allow for this exemption to be used by both spouses.

Please remember that to be effective any gifts must be genuine and that tax is not the only thing that needs to be taken into account when considering making gifts.

Inheritance Tax - It is possible to make lifetime gifts without incurring Inheritance Tax:

1. If an outright gift is made and the donor survives for more than 7 years from the date of the gift, the gift is exempt subject to the rules relating to a gift with reservation.
2. Gifts of up to £250 per tax year can be made to any number of individuals and will be exempt. No part of the exemption can be carried forward and it cannot be used to cover larger gifts.
3. Transfers of up to £3,000 per tax year are exempt. Any unused part of the exemption can be carried forward for one year only (the current years exemption is set against gifts before utilising the amount brought forward).

Be careful when making gifts of anything but cash, as there may be Capital Gains Tax implications.

Pensions - One of the most tax efficient arrangements that you can have is available by making contributions into a pension plan.

Serious consideration should be given to the level of funding of your pension scheme and in some circumstances it can be advisable to treat part of the premiums you pay as if they were paid in the previous tax year.

If you are in a company pension scheme, it may be worth considering making Additional Voluntary Contributions in respect of any bonuses, benefits in kind or to buy in added years.

All of the information included here should only be taken as a guide as you should review any plans in the light of your personal circumstances.