Garbetts News March 2011

Following on from my last article when I discussed the tax efficiency of the cash and stocks & shares ISA, as with many other investment and pension products, there are contribution limits imposed each tax year and once that tax year has gone, there the risk that opportunities are lost.

There is a check list available to ensure that you have considered all the tax saving options:

1. Maximise your cash and stocks & shares ISA - £10,200 with a limit on the cash ISA to £5,100

2. Make use of your capital gains tax (CGT) allowance, especially if you have held any shares or unit trusts for a long time and are considering selling them. Simply work out how much you paid for them, minus any dealing costs; then deduct the sale price, minus any dealing costs. If the gain is less than £10,100, there will be no capital gains tax to pay. If the gain is in excess of the allowance, then you will pay 18% capital gains tax. Otherwise wait until the 6th April and use your new allowance to mop up the remainder

3. From April 2011, the annual allowance for tax-relieved pension savings reduces from £255,000 to £50,000. You will not be affected by this change, regardless of level of income, if you are:

~ self-employed and contribute less than £50,000 a year into your personal pension scheme(s)

~ You are still able to contribute more than £50,000, but there will be an annual allowance charge, which effectively is the loss of pension tax relief on this excess contribution

~ a member of a 'money purchase' workplace pension scheme and the total contributions made by you and your employer together with any contributions you may make to other pension arrangements (such as Additional Voluntary Contributions (AVCs) or private pensions) is less than £50,000

- There will be a three year carry forward rule that allows you to carry forward unused annual allowance from the last three tax years if you have made pension savings in those years. This means if your pension saving is more than £50,000 you still may not have to pay the annual allowance charge.

- The maximum that can be contributed as an employee pension contribution is 100% of your salary and does not include dividend payments. This can be very restrictive and therefore often the best route is to make an employer contribution and the figures quoted above come into effect.

- You are also allowed to make pension contributions of up to £2,880 for anyone who has no relevant income such as a child or grandchild. HMRC will add 20% tax relief, making a gross contribution of £3,600. You can make as many separate contributions (within reason) i.e. if there are four children, the £2,880 into each.

Article contributed by Graham Legg of Garbetts Financial Strategies - www.garbetts.com/gfs - 01983 527111