The tax year ends on 5th April 2012

Time for some basic tax planning



Why 5th April?

The Gregorian calendar reduced the length of the calendar year from 365.25 days to 365.2425, a reduction of 10 minutes 48 seconds per year to ensure Pope Gregory’s calendar was an accurate time keeper. Although the Gregorian calendar had been introduced in Italy, Spain, Portugal and other regions, it was slow to spread to the British Empire, where it was not introduced until 1752. By then the British calendar was about 11 days off the rest of Europe and due to increase as time passed, so it was time for the British to change.

On the old British calendar the tax year began on 25th March (the old New Year’s Day). To ensure against losing revenue it was decided by the British Treasury that the tax year which started on 25th March 1752 would be of the usual length (365 days) and therefore it would end on 4th April, the following tax year beginning on 5th April.

And then 1800 was not a leap year in the new Gregorian calendar but would have been in the old Julian system. Thus the British treasury moved the start of the UK tax year from the 5th to the 6th of April.        Easy really!


Basic tax planning you should consider


  • Minimise your tax liability by making the most of the allowances and exemptions available to you.


  • Where one spouse pays a lower rate of tax (or no tax) than the other spouse, it can be tax-beneficial, subject of course to practical considerations, to transfer investments to the lower-taxpaying spouse to save tax and thus increase the overall net-of- tax returns.


  • Transfers between married couples, where both spouses are UK domiciled, will not incur any inheritance tax nor will there be any capital gains tax if they are living together.


  • Older married couples benefit from an increased age-related personal allowance. This is cut back when income exceeds the age allowance total income threshold of £24,000 in 2011/12 (£25,400 in 2012/13). It may therefore be advisable to transfer income-producing assets between couples where one would otherwise exceed this age allowance income limit.


  • Where it is earned income that takes the individual into the £100,000-£114,950 bracket they should seek to reduce this by either paying a pension contribution or arranging for a salary sacrifice. This way, it may be possible to obtain 60 per cent tax relief on some pension contributions.


  • Capital Gains Tax - for individuals, the annual exemption is £10,600 for 2011/12 and has been frozen at this level for 2012/13. For higher and additional-rate taxpayers who will otherwise pay CGT at 28 per cent, use of the annual exemption has potentially become more valuable and can now save up to £2,968 in tax. For a basic- rate taxpayer the tax saving is worth up to £1,908. It is important to use the annual exemption each tax year because, if unused, it cannot be carried forward. Unfortunately, a gain cannot be crystallised by selling and then repurchasing an investment - so-called bed-and-breakfast - as the disposer must not personally re-acquire the same investment within 30 days of disposal. But, there are other ways of achieving similar results such as bed-and-ISA, bed-and-SIPP, bed-and-spouse and similar. But beware, there is likely to be a cost involved. Seek advice.


  • Some allowances will be changing and some lost.


  • The 50% cent rate of income tax on incomes above £150,000 will reduce to 45 per cent on 6 April 2013. So if you fall into the higher band, it could benefit you to defer income from 2012/13 to 2013/14 where possible, saving 5% on your top slice of taxable income.


  • Those with incomes above £100,000 will lose personal tax-free allowance at a rate of £1 for every £2 over £100,000.


  • Child benefit changes are due to come in on 7 January 2013. Households with income of more than £60,000 could lose all of their child benefit, households with income between £50,000 and £60,000 will be subject to a new tax charge on their benefit. Those who continue to receive the benefit and pay the tax charge will need to do so by self-assessment


  • Consider tax efficient investments.


  • Individuals - make use of your annual ISA allowance. For tax year 2012/13 individuals can invest up to £11,280 (a maximum of £5,640 can be in a cash ISA) .These offer tax relief on both income and gains. There are also Junior ISAs for the under 18s. Because JISAs work on a tax-year basis, if there is a desire to maximise contributions to a JISA, this means investing before April 6, 2013. Investors should remember that, in effect, the JISA will be accessible by the child from age 18.


  • There are tax efficient investment schemes for individuals seeking to invest in UK businesses: these include Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT) and the Seed EIS (SEIS). For high investment risks you get generous tax advantages. Typically, EIS offers 30 per cent tax relief and capital gains exemption, and SEIS also has generous tax concessions for investment in smaller businesses.


  • Inherittance Tax - The inheritance tax nil-rate band has been frozen at £325,000 for 2011/12 (and indeed until April 5, 2015). The tax year-end is a good time to consider your IHT position with a view to making gifts. If ongoing control is required of the assets gifted, a discretionary trust may be useful but with care not to exceed the available nil-rate band. If you are concerned about IHT you should consider using your £3,000 annual exemption before the end of the tax year. Any unused amount can be carried forward for one year but no further.


  • Remember to seek advice before embarking on actions designed to minimise tax, invariably conditions apply and timing can be crucial

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© Jose Goumal

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