April 6 is not only the start of the new tax year but also the start of new tax regimes. Suzie Horne rounds up the opportunities to save tax by acting before the new year begins
Capital Gains Tax
There are big changes to CGT from the end of this tax year. Reliefs currently available make the effective rate of tax 10% for most farmers, but this will rise to 18% from April 6.
- While a new entrepreneur’s relief will mean that the first £1m of gains in a lifetime are taxed at an effective rate of 10%, this is expected to apply only to the disposal of a whole business.
- It is probably too late to make any open market sales to benefit from the lower current rate, but bearing in mind that the new entrepreneur’s relief is likely to be more restrictive than the existing rules, consider making disposals of assets which currently qualify for business asset taper relief by gifting them to family members or other beneficiaries before April 6 this year if appropriate, says David Missen of Larking Gowen.
“The detailed rules will be complex but if you have significant taper relief or indexation allowance it makes sense to utilise them now if that fits in with your longer term succession plans.”
For many arable growers and some milk producers, this is likely to be the first time for some years that they have substantial taxable profits. If you have a 31 March or 5 April year end, it may be possible to lower the tax bill by accelerating capital expenditure into the current year, says Mr Missen.
The limits on contributions are now very generous (up to £225,000 per individual this year) and tax relief on them is available at basic and higher rates of tax, but to claim this year’s reliefs, you must invest before 6 April.
- Consider making a large single payment into a pension, says NFU Mutual’s tax specialist Shelagh Hamer. The basic rate of tax is reducing from 6 April 2008, which means that for basic rate taxpayers, pension contributions made in the 2008-09 tax year and going forward will get basic rate tax relief at 20% instead of 22%.
- There’s also a special provision in pension rules called an input period which allows you to effectively make double contributions in this tax year. You need to take professional advice to make use of this concession.
- Self invested personal pensions (SIPPS) have particular appeal for farmers as they allow pension investment in land and other qualifying assets, effectively making the land an investment with tax relief.
- Low earners and even those who have no taxable income can get tax relief on pension contributions, up to a maximum of £3,600. If you invest £2,808, the government will add £792 of tax relief to make the contribution up to the maximum allowed. So, consider this for other family members who have no or low pension investment.
Annual allowances and exemptions
Most annual allowances can no longer be carried forward so if they are not used by 5 April 2008 their potential benefit will be lost for good, warns Mrs Hamer.
- the ability to make IHT free gifts of up to £3000 a year
- marriage gifts from parents up to £5000 IHT free (max £3000 from grandparents, £1000 from others)
- individual annual CGT exemptions (currently £9000)
Individual Savings Accounts (ISAs)
These are savings and investment products where the growth in value is free of CGT and which attract no income tax. Currently, each individual has a £7000 annual ISA allowance which can be invested in mini or maxi ISAs, but not a combination of both. These vary from mini cash ISAs, where your capital investment is guaranteed to stock market ISAs where there is more risk.
Next year the maximum for cash ISAs will rise to £3600 and £7200 overall. Transfers from cash ISAs to stocks and shares ISA will also be allowed to encourage people to save for the long term without affecting their normal annual ISA allowance.