Spring 2006 – Pre-Tax Year End Matters

Welcome to our latest quarterly newsletter which contains items of news affecting all our clients and this issue in particular considers some pre-tax year end matters.

ISA’s and Other Tax Efficient Investments

If you have not made full use of your ISA, then this should be done before 5 April. The maximum investment in an ISA is £7,000 of which up to £3,000 may be in cash, £3,000 in Stocks and Shares and the rest in Life Insurance. Any income earned in ISA's is free from income tax.

For children or grandchildren aged 16-18 years consider funding a cash only ISA up to a maximum of £3,000. If you wish to make tax efficient investments beyond ISA’s, then consider National Savings or Premium Bonds.

Inheritance Tax

Each tax year, individuals can make gifts of up to £3,000 out of their Estate without incurring any potential charge to inheritance tax. In addition, if you have any children that are going to be married, then there is the opportunity to make a gift of up to £5,000 in respect of their wedding.

Anyone who is conscious of the fact of their wish to reduce the value of their Estate and so reduce any future potential inheritance tax liabilities, should make use of these opportunities before 5 April.

Pensions

As we discussed in our last newsletter, pension simplification is being introduced from 6 April this year. Therefore, there is little time left to review any actions you need to take before any changes are implemented. Clients need to consider some or all of the following points:-

At present it is possible to borrow up to 75% of the purchase price within a pension fund when acquiring a commercial property. From 6 April 2006, this ability to borrow within pensions schemes will fall to 50% of the assets of the scheme. Therefore, anyone considering purchasing commercial property and raising funds within the pension scheme to do so, needs to have these acquisitions completed prior to 5 April.

As at 6 April 2006, there will be a lifetime limit on an individual's pension fund which initially will be set at £1.5M. If you wish to have a pension fund beyond that limit, then contributions need to be made into the fund by 5 April 2006. Any individuals who already have a pension fund worth in excess of £1.5M, need to seek advice from their Pensions Advisor as to how to protect the total value of the fund from any potential tax charge in the future. Any action taken to protect funds must be done by 5 April 2006.

For those people with retirement annuity contracts, the latest date to pay a contribution is 5 April 2006, carrying back to the 2004/2005 tax year.

Clients that have not previously made maximum contributions into their pension schemes and would like to make additional contributions now, should contact us to seek further advice on this matter.

Capital Allowances

Any businesses with a year end of 31 March or 5 April that are looking to reduce the tax liability on this year's profit, should consider bringing forward any plans they have for capital expenditure.

Small businesses, i.e. businesses with a turnover up to £5.6M can qualify for up to 40% first year tax relief on capital expenditure. The assets need to be acquired before the business reaches its accounting year end. For details of the specific rates of tax relief available for any expenditure you may have in mind, please contact us for further details.

Capital Gains Tax

Each individual has an annual allowance for gains and disposals of assets each tax year amounting to £8,500 (2005/06). Anyone who has not yet taken advantage of their exemption this year that is planning of making disposals should consider bringing forward the disposal to before 5 April if the gain is not likely to exceed their annual allowance.

Husband and wives owning assets jointly need to bear in mind that they each have an annual allowance and so the disposal of any assets owned jointly with a gain of less than £17,000 (2005/06) will not give rise to a tax charge.

Any clients who are considering making a disposal for capital gains tax purposes which is likely to exceed the annual allowance and so trigger a charge to capital gains tax may wish to consider deferring the disposal until after 5 April 2006. By doing this, any tax payable on the disposal will not have to be paid to the Inland Revenue until 31 January 2008.

Capital gains tax is an extremely complex area of tax depending upon whether a business or non-business assets is being disposed of. Any clients who are considering disposals for capital gains tax purposes, should contact us to discuss their transaction prior to disposal.

Benefits-in-Kind and Company Vans

As from 6 April 2006 there has been a significant change in how company vans provided to employees are treated for tax purposes.

Under the old rules up to and including tax year 2004/05, van benefit was based on a scale charge of £500 if the van was less than four years old and £350 otherwise.

Under the new rules there will be no charge to taxation unless an employee makes significant personal use of the van.

For example, if a van is made available to an employee who takes it home each night/weekend but does not use it otherwise, then there is no van benefit charge. However, if the employee takes the van home and uses it for private purposes, then the van benefit will be £500 (based on a van under 4 years old).

From 6 April 2007 any employee who is taxable for private use of a van will be taxable on an increased amount of £3,000 rather than the current £500.

Key Dates

Do not forget the following deadlines in order to avoid any unnecessary penalties:-

Whilst all due care and attention has been taken in the preparation of this review, we cannot accept responsibility for loss occasioned by any person acting or refraining from action as a result of material contained in it. There is no substitute for professional advice specifically tailored to your personal circumstances. We can give that advice and welcome the opportunity of assisting you. If you would like to discuss any of the issues raised further, or for us to arrange a review of any of your employment procedures, please contact Alan Cohen or Darren Swann on 0161-249 5040.