December 2007

The early bird...

It's that time of year again. That time when articles appear reminding us of what actions we and our clients should be taking to ensure we take advantage of those tax benefits that are available. This year I thought I'd get in there first!

Isn't it a bit early? No. The first articles are appearing in the national papers which will normally mean that the loyal client will be waiting for that phone call, checking the morning post and nowadays probably eagerly visiting their Inbox, looking for your guidance.

So be it a mail shot or more individual approach preparing your clients for April 2008 should start now. So what to discuss.

ISA Allowance: I am sure you don't need reminding that the allowance for the current tax year is £7,000 with a maximum cash element of £3,000 for a Maxi ISA. Remember to highlight, particularly to those contributing monthly, that the maximum ISA allowance from 6th April 2008 rises to £7,200 with a maximum cash element of £3,600.

Also from 6th April 2008 PEPs will be bought under the ISA wrapper which may well give access to previously unavailable funds or asset classes.

Pension Contributions: This year is the second year of the higher level of contribution rates, with the maximum benefits test being applied against the Lifetime Allowance on vesting.

The maximum for this year to qualify for tax relief is 100% of pensionable income or £225,000 whichever is the lower, although remember that this does not apply in the year that pension benefits are taken.

As well as factoring that any income tax relief gained through tax planning tools such as film schemes will probably reduce the qualifying pensionable income, we must now also be mindful of the effect of a contribution now towards the possibility of exceeding the Lifetime Allowance in the future. Any pension contribution by a high net worth (HNW) client should include comment on the likelihood or otherwise of this at the anticipated retirement age.

Capital Gains Allowance: Usually you might look to crystallise some gains prior to April 2007, to make sure that annual CGT allowances are used. This is particularly efficient when supplementing income for a higher rate tax payer through gains.

However this is not quite so straightforward this year.

Darling's announcement of a flat rate of CGT of 18% and the removal of tapering etc. has been met with growing opposition and I would be extremely surprised if we didn't see a change in those proposals before they become law.

So I personally would defer any CGT planning until we have at least seen the draft legislation which should be with us in the next month or so. At least then you can give informed advice.

Inheritance Tax Planning: It is estimated that over 25% of households currently have a liability to inheritance tax. IHT has a very high profile at the moment with the Conservative proposals to raise the threshold to £1 million being quickly followed by Alistair Darling allowing the carrying over of unused relief between married couples and those in civil partnerships on the second death.

Few national papers have actually explained this change accurately, and this presents an opportunity to educate your clients, but if you have already done so I would suggest a gentle reminder to those that can and are mindful to do so, to use their annual gift allowance of £3,000 - remembering that you can carry back to the last tax year if this went unused. Waiting until 6th April 2008 will mean the loss of the 2006/07 gift allowance.

There are many other areas but in my opinion these are the most widely relevant.

I would however recommend one other seemingly obvious and perhaps apparently silly reminder, and that is to all of those that are required, to complete a tax return. I am still being introduced to new clients who are personal pension contributing, charity giving, higher rate tax payers who have not submitted a tax return and are missing out on a reduction in their tax bill. Most believe that they automatically receive the rebate they are due. The rebate they are entitled to is usually more than enough to pay my fee!

Tony Clements
IFA
Park Row Corporate and Private Clients