Dear Client
Another tax year is almost over and perhaps it is opportune to take a few minutes to remind ourselves of what we should be doing on or before 5 April 2009, and what changes are effective from the start of the new tax year.
New limits affecting registered pension schemes with effect from 6 April 2009:
The annual allowance increases to £245,000.
The lifetime allowance increases to £1,750,000.
If contributions are being paid at or near the maximum level, please remember that the ability to carry forward or carry back is now long gone; make sure that any final payments in the 2008/09 tax year are made in good time. And don’t forget about pension provision for a spouse, civil partner or child with no or low earnings. A net contribution of £2,880 (£3,600 gross) can be made regardless of earnings.
Pension input periods
Clever use of changes to the pension input period allow two years of annual allowances to be contributed to a scheme in a single tax year where the contributions fall into two different input periods. This means someone earning £480,000 in the 2008/09 tax year who decided to pay £235,000 (gross) into his new pension plan on say 7 March 2009 can subsequently nominate this as the date on which this first pension input period should end.
Therefore, this contribution will be tested against the annual allowance in the 2008/09 tax year. As the earnings allow, a further contribution of £245,000 (gross) in the pension input period commencing on 8 March 2009 can be made. However, this contribution will be tested against the annual allowance in the 2009/10 tax year. Both contributions will qualify for immediate tax relief at the basic rate of 20% with higher rate relief being claimed through assessment.
Registration for Primary and Enhanced Protection Deadline – 5 April 2009
The lifetime and annual allowances are set to rise to £1.8 million and £255,000 respectively by the tax year 2010/11. The Chancellor has announced that from 2011/12 these will be frozen until up to and including tax year 2015/16.
The change will render many more pension savers facing a punitive tax charge of 55% because they will potentially breach the lifetime allowance limit by the time they come to crystallise their benefits.
The freezing of the lifetime allowance means that it will be even more important for those individuals with pension rights built up before 6 April 2006 to protect them from the 55% tax charge. The deadline for registering for protection is only a short time away – 5 April 2009. It is essential therefore those individuals should assess the size of their pension benefits and ongoing contribution levels to make sure that they will not be caught out by this freeze.
Company Year End
If a company’s trading year finishes on 31 March 2009 then they must have paid any pension contributions by that date; anything paid later will fall against the company profits assessable in the following year.
And, finally on pensions – don’t forget that since April 2006 there has been no restriction upon the number of registered pension plans an individual can be a member of.
Individual Savings Account (ISA) savers are able to invest in two separate ISAs each tax year, a cash ISA and a Stocks & Shares ISA (the two ISAs can be with different providers). The combined total must not exceed the annual allowance of £7,200; the annual cash investment allowance is limited to £3,600. The cash opponent of an ISA can be transferred (without counting towards allowance figures) into Stocks & Shares but not vice versa.
Please remember that there is no carry-forward of an ISA allowance, so it needs to be used before the end of the 2008/09 tax year, or lost. It is also the individual’s responsibility to ensure that contributions do not exceed allowances.
A spouse, civil partner, or child over the age of 16 in the case of a cash ISA, also has their own ISA allowance.
Given that the majority of the taxation charges introduced in the last pre-budget report will potentially not come into effect until 6 April 2010 or 2011 the action points in the run up to 5 April 2009 are fairly straightforward.
Income Tax
Consideration should still be given to switching investments from higher-rate to basic-rate spouses or registered civil partners.
In addition, non-UK domiciled individuals should be reviewing the number of years they have resided in the UK and where this is seven or more years at the start of the current 2008/09 tax year, making a decision about whether they will elect for the remittance basis to continue and therefore pay the £30,000 annual charge, or have their worldwide income brought into account for Income Tax purposes. It should be remembered that election for the remittance basis to apply would automatically mean a loss of all personal Income Tax and CGT allowances for the year in question.
Capital Gains Tax (CGT)
If appropriate, an individual and/or Trustees should utilise the CGT exemption for the current year, £9,600 for an individual and £4,800 for Trustees, before 6 April 2009. The annual exemption cannot be carried forward.
Subject to other investment issues, consideration could also be given to realising losses on investments, if the taxpayer already has chargeable gains in the current year in excess of the CGT exemption of £9,600. However, it is important to remember that only losses sufficient to reduce the net gain to no less than the annual exemption should be crystallised in order to ensure maximum tax efficiency.
Inheritance Tax (IHT)
Individuals should consider making outright gifts before 6 April 2009 to utilise the annual IHT gift exemption of £3,000. If no gifts have been made in the previous tax year it is possible to carry forward the unused allowance for use in the current year, bringing the total exemption available to £6,000. The current year’s allowance is offset against the gift initially with the previous year’s allowance being used to mop up the excess.
Chancellor’s 2009 Budget
We trust the foregoing is of interest and more particularly of use for either yourself or your clients.
Charter Financial Planning
|
