Don't dither, act now

Mar 6 2010 By Marcella Shone, The Journal

The end of the financial year looms and the implications of a new government on our finances are increasingly becoming a concern. Tax specialist Marcella Shone advises on how we can prepare.

FOR many people, dealing with routine administration is a real chore. It is often neglected, sometimes overlooked and almost always undervalued. Now is the time to start thinking about routine housekeeping and strategic tax planning in the run-up to the end of the financial year and you should ensure that you have an adviser that can deal with these matters in an efficient and cost effective manner so that you know your affairs are up to date and under control.

In order to help you think about some of the considerations to make in the run-up to the new financial year, here are some top tips for good tax housekeeping.

Tax is, of course, only one factor amongst many to think about and what follows should be considered in the light of your specific circumstances.

If your income is likely to exceed £150,000 in the next tax year, consider, for example, closing bank accounts before April 6 to bring income forward from next year into this year, when it will be taxed at 40% rather than 50%.

If your income is likely to exceed £100,000 in the next tax year, consider whether there is any way in which you can reduce it to £100,000 or less (eg by transferring income producing assets such as shares to your spouse). This will save tax at 60% on the band between £100,000 and £112,950.

Trustees of discretionary trusts should consider distributing income this year rather than next. They would also be well advised to review the terms of the trust and the underlying investments.

Invest for capital growth rather than income if practicable. Capital gains are currently taxed at 18% (but that will probably rise to at least 25% in the not-too-distant future).

Use your capital gains tax annual exemption (£10,100) before April 6.

Make use of your ISA allowance.

Companies should consider paying dividends before April 6 (when they are taxed on shareholders at an effective rate of 25%) rather than after (when those with income over £150,000 will pay tax at an effective rate of 36.11%).

Have you used your inheritance tax annual exemption of £3,000? Any unused balance can only be carried forward for one year.

:: Marcella Shone, a tax specialist in the wealth management department at Dickinson Dees. She can be contacted on 0191 279 9410 or email: marcella.shone@dickinson-dees.com