News Article - Life doesn't have to be taxing

A number of tax changes have been announced in recent months and this is a good time to plan ahead to minimise their impact and to take advantage of available reliefs.

The limits for Individual Savings Accounts (ISAs) are increasing to allow a maximum annual investment of £10,200 of which up to half can be cash. The change will take effect from 6th October for those over 50 and from 6th April next year otherwise. Interest and dividends within ISAs escape income tax and with the top rate increasing by 10% next April, ISAs look more attractive than ever as perfectly legal tax shelters. They – and any shares within them - are also exempt from capital gains tax.

Pension funds are also very effective tax shelters. Anyone can have a pension fund, irrespective of whether they are earning. A basic stakeholder pension fund allows someone with no earned income to pay in £2,880 each year with the tax man adding £720 to top this up to £3,600. It makes good sense to accept this "free" money from the Government. Employed earners obtain further tax breaks on pension contributions. Some grandparents even make contributions for their grandchildren – imagine the size a tax free fund can reach if it is started at a young age – taking advantage of both the income tax relief and the opportunity for some inheritance tax planning..

Businesses should start planning ahead to make the best use of the 40% First Year Allowances available up to next April for expenditure on equipment, fixtures and vans (in addition to the 100% allowance for the first £50,000 of capital expenditure).

Anyone with taxable income in excess of £100,000 will need to begin thinking about whether they can bring income forward to the current tax year to avoid the claw back of the personal tax allowance for incomes in excess of that amount and the new 50% income tax rate for incomes in excess of £150,000.

Trustees of discretionary trusts should also take advice on the impact of the new 50% trust tax rate. It may be worth considering converting such settlements to "life interest" trusts where income will be charged at the beneficiaries’ tax rates rather than at 50%.

A tax change scheduled for 1 January 2010 that will hit virtually everyone is the increase in VAT from 15% to 17.5%.

The changes will affect everyone, but planning ahead can minimise their impact.

Paul Aplin is a tax partner with A C Mole & Sons and a former chairman of the Institute of Chartered Accountants in England & Wales Tax Faculty. He can be contacted on 01823 624450, email paulaplin@acmole.co.uk. Bridgwater based tax partner Paul Kingdom can be contacted on 01278 446088, email paulkingdom@acmole.co.uk.