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Start of Year Tax Planning
The early months of the tax year are a good time for savers to think about tax planning for the current year.
In particular, now is a good time to think about investments that produce regular income – if you can find them.
If you expect to have a lower rate of tax next tax year as opposed to this (say because you are retiring), it might be worth moving any interest-bearing investments to accounts which will pay interest after 6 April 2010. This will make the interest payment carry its charge to tax when you pay tax at a lower rate. Shifting from investments that pay monthly or quarterly interest to annual interest can also reduce your tax bill for the current year.
Also, take a good look at the interest rate you are earning on your savings accounts. You may do better by moving them to get a better rate of return. Many accounts currently pay very little interest indeed.
Gifts for IHT
As well as small gifts, you are entitled to give away, tax free for Inheritance Tax (IHT) purposes, gifts totalling £3,000 in each tax year. Larger amounts can be given as marriage gifts. Any larger gifts you make will normally be free from IHT provided you survive seven years from the date of the gift.
Consider making additional payments into your pension, especially if you are self-employed. Anyone can pay into a pension.
Take Advantage of Tax Free Investments
There are several forms of investment which are tax free. Individual Savings Accounts (ISAs) are the best known. Premium Bonds and some National Savings and Investments products are also tax free.
Conventional tax wisdom is not to make use of the tax free gains limit too early in the year. There is just a chance, for example, that one of your shares may create an unavoidable gain were the company to be taken over.
Tax planning is not something that can be done on a once and for all basis. Keep your arrangements under constant review and always take professional advice before acting.