Tax planning

A review of tax planning to maximise your net income, business and family assets should always be high on your personal financial agenda. The main areas and structures to be considered when mitigating tax are as follows:

Personal allowances & income tax

Every person in the UK is allowed to earn a certain amount of money each year without paying income tax, known as a personal allowance. This tax year, the personal allowance is £8,105, with higher allowances available to those aged 65-74 (£10,500) and age 75 and over (£10,660). If you become 65 or 75 during the year to 5 April 2013, you are entitled to the full allowance for that age group.

However, if you earn income above £100,000 you start to lose the personal allowance (at a rate of £1 for each £2 you earn above this limit.

If you are married and one partner is not working, if appropriate, it could be beneficial to transfer savings accounts to them, so that you pay less income tax as a couple. If you don't make use of your personal allowance in any tax year, you cannot carry it forward to the next year.

Capital gains tax

If you have made a taxable gain from the sale of property, shares, investments, businesses or any form of capital gain, you should make sure you don’t make unnecessary CGT payments. CGT is a tax charge that arises from the disposal of assets, such as shares or buy-to-let properties, charged at 18 per cent for lower and 28 per cent for higher rate tax payers. Every individual has an annual capital gains tax-free allowance, which currently stands at £10,600 for the 2012/13 tax year.

The limit applies to each individual, so if you are married or in a registered civil partnership you each have an annual exemption and should ensure that each of you maximises your CGT free gains.

There are different ways to reduce CGT bills, for example, equalisation or joint ownership of investments will transfer income to the lower-taxed one. This can be done CGT free for married couples and registered civil partnerships. By transferring an asset into joint names, you could both make use of your tax-free allowance so that up to £21,200 of any gain can be tax-free in the current tax year. But the transfer to your spouse or partner must be a genuine outright gift, so this might not be a suitable strategy for everyone.

It may also be appropriate for some unmarried couples to equalise non - CGT assets such as bank accounts, which could mean that it becomes possible to equalise or transfer assets on whichever gains are less than their annual CGT exemption. Even if an asset is only put into joint ownership the day before it produces income – for example, through interest or a dividend – that income will still be split equally between both owners.

If you immediately sell employee shares that you get through a Save-As-You-Earn share option scheme, company share option scheme or enterprise management incentive scheme, you may have a CGT bill. Consider selling in several tranches, so that each year’s gain is within your annual tax-free allowance.

Consider selling assets that stand at a loss in order to crystallise that loss for use against current year gains.

Inheritance tax (IHT)

Effective IHT planning could save your family hundreds of thousands of pounds. If you haven't done anything about a potential IHT bill, now is the time to take action. Currently, IHT is charged at 40 per cent on anything you leave over £325,000 when you die (£650,000 for married couples or registered civil partnerships).

With rising property prices in recent years, this has resulted in more people being subject to IHT.

Start by writing a Will, making it clear to whom you want to leave your money and possessions when you die. You may then want to try and minimise any potential IHT bill by giving regular small gifts away. Currently, you can give away a lump sum of up to £3,000 in each tax year without paying IHT – known as your 'annual exemption' – or £6,000 this year if you haven't used last year's allowance.

You also have a 'small gifts exemption', which means that you can make small gifts of £250 each year free of IHT. There is no restriction on the number of small gifts but they must each be to separate individuals. You cannot use your annual exemption and your small gifts exemption together to give someone £3,250.

Use the annual exempt amount of £3,000, the small gifts exemption of £250 per recipient and make regular gifts out of income.

Any death benefits from pension arrangements and life assurance policies should be written in an appropriate trust so any proceeds are outside the estate.

Consider lifetime gifts so the seven year “potentially exempt transfer” clock starts to run to mitigate IHT on death.

Revisit deceased estates

If a relative has died within the past two years a rearrangement of their estate through a “Deed of Variation” could put income into the hands of family members whose income level is below the 40 per cent or 50 per cent income tax threshold.