Your Money Magazine :  How an IFA helps you keep Gordon Brown's taxing hand out of your pocket.

by Richard Croxford, Practice Development Director, Inter-Alliance & Grant Hughes, Director. (March 2000)

OVER the coming weeks, in the run up to the Budget and the end of the tax year, we will be bombarded once more with pages of advice about last-minute tax planning.

The purpose of this article is to go one better and point out some of the more sophisticated issues, to show how an experienced Independent Adviser can help you go that little bit further in keeping Chancellor Gordon Brown's hand out of your pocket.

First of all, here are a few tax time-bombs set to go off in April, hitting most households by a few hundred pounds.

MIRAS will be abolished in full, as will the married couple's allowance (and its equivalent for single parents - the additional personal allowance) for couples under age 65 as of April 6.

Also for the chop are the widows' bereavement allowance and tax relief on child maintenance payments.

On the plus side, the obvious allowance to maximise is the current year ISA amount (£7,000 per person).

While there is no point buying an ISA for the tax advantage per se, most individuals could make use of the allowance, even if only via a cash-ISA.

Savers with substantial PEP holdings should also consider reviewing their portfolios to make the most of asset allocation or revised needs.

A good IFA can help to structure a portfolio tailored to your attitude to risk, growth or income needs and tax status.

The newspapers will recommend that we all consider maximising our pension funding before the end of the tax year.

This is good advice as the tax relief available on pension contributions, be it a personal pension scheme or an AVC plan alongside an occupational scheme, can be very valuable.

However, next year another major loophole will be closed and now is a good time to begin preparations.

Personal pension holders can make use of a facility to make pension contributions based on previous years' earnings.

Large contributions can be paid into pensions and qualify for tax relief, although the income (against which the relief is being claimed) arose in previous tax years.

Under self-assessment the self-employed can use these reliefs to reduce tax bills next year.

This can ease cashflow in the coming year as well as provide further security in retirement.

Attention should also be paid to capital gains tax. 'Bed and Breakfasting' is no longer allowed, as a 30-day timescale was introduced in the last Budget to prevent assets being sold and immediately repurchased in the new tax year to crystallise the taxable gain and offset it against the years annual exemption.

Since each person receives an annual allowance, careful asset-switching (for example between husband and wife) can minimise or avoid a tax charge.

Capital gains tax is now a very complex area, with indexation relief now finished (in April 1998) and taper relief now active.

Some windfall payments (resulting from insurance company flotations / takeovers) will now be taxable next year, and may cause some high unexpected tax bills!

Business retirement relief is also being hit, with the thresholds of tax reliefs reducing substantially from April.

More specialist ways of dealing with capital gains tax have developed over recent years, including the use of Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs).

Here, it can be possible to roll the taxable gain into such a vehicle, attract income tax relief and defer the tax due by five years and hopefully enjoy some capital growth along the way!

Due to the complexity of capital gains tax legislation, we always recommend specialist advice.

Inheritance tax planning should also be addressed, as most allowances and exemptions feature on potential Budget 'hit lists'.

Be sure to utilise annual gift allowances.

Although the value of an estate has to reach £231,000 before inheritance tax becomes an issue, the enormous rise in property values will have pushed more households into the realms of potential liability.

This is a voluntary tax that catches people out needlessly year after year (for example, married couples can transfer assets without an inheritance tax charge).

Please ensure that family wills are up to date, asset valuations are re-appraised and action is taken to avoid unnecessary taxes.

Sometimes all liability can be removed by using simple trusts.

In short, it always makes sense to review and re-evaluate.

Many people have taken the year 2000 to be as good a time as any to reappraise their positions.

Please contact us for further information.