Tax year end planning tips 2012/13

There have been some significant changes to financial legislation in the past year and many investors remain unaware of their entitlements.

Taylor Patterson’s director, Keith Pressler, answers your questions on preparing for the 2012-13 tax year end:

1. I’m not sure how much I can save in my pension this year?

From April 6, 2011, the annual limit on tax relief for pension contributions has been reduced from £255,000 to £50,000. Although this may seem a drastic reduction, the new annual allowance limit will be applied to the last three tax years and provides the possibility of any unused allowance being carried forward and utilised with the current tax years allowance.

For those businesses or individuals who have the available capital, it may be possible to contribute up to £200,000 in the tax year ending 5th April 2013, certain restrictions apply.

2. I have some extra cash to invest before the financial year ends, are ISAs still a tax efficient way to save?

Outside of contributions to a registered pension scheme, an ISA remains the main method of investing savings in a tax efficient environment whilst allowing complete flexibility of access to the invested capital. The current annual subscription limit to an ISA is £11,280.

You can either invest the full amount in a Stocks and Shares ISA or up to £5,640 in a Cash ISA with the balance in a Stocks and Shares ISA. Contributions need to be made before the April 5, 2013 to qualify for 2012/13 tax year.

3. How can I make the most of any Capital Gains Tax (CGT) exemption?

This provides a valuable opportunity to generate tax-free profit generated by means of collective investments / shares up to the annual CGT Exemption of £10,600 (2012/13). Portfolios of any significant value should be equalised between spouses or civil partners to maximise the use of each individual’s CGT Exemption.

Income on collectives, even if accumulated, is taxable. By establishing a portfolio for capital growth, the potential liability to CGT on any profit in excess of the annual exemption is applied at the rate of 18% for basic and 28% for higher and additional rate tax payers.

4. I’ve recently turned 65 and I’m not sure how this affects my personal allowances this tax year?

Individuals aged 65 and over are entitled to a higher personal allowance. If you are aged 65 or over, the personal allowance is increased to £10,500 and £10,660 for individuals aged 75 or over.

However, if the individual’s adjusted net income is more than £25,400 for the current tax year, the additional personal allowance is reduced by £1 for each £2 of excess. This reduction stops when the allowance reverts to the basic personal allowance of £8,105.

The personal allowance does not reduce below the minimum unless income is above £100,000. By using charitable donations, individual pension contributions and tax exempt investments such as ISAs or non income producing products, the age allowance could be preserved. Keith Pressler, director at Taylor Patterson, said: “Tax is a complex subject, which is why we recommend people consult an independent financial adviser to ensure that they are not paying more than they are required to do so, while still paying their dues. This is particularly important for individuals with large or complicated portfolios to manage.”