ISA limits increased by £3,000 in April 2010 and will increase further in 2011/12 tax year to £10,680. Ensure clients have maximised the increase in allowance, especially those paying monthly who may well be under funding.

Capital gains tax has increased for higher rate tax payers to 28% and remains at 18% for basic and non tax payers. Where appropriate, realise gains to use the Annual Exempt Amount. If CGT is payable at 28% consider pension contributions to extend the individual’s basic rate tax band taking them out of the higher rate tax bracket, receive relief on the pension contribution and a 10% reduction in the rate of CGT applicable.

Register any realised losses as well as using previously registered losses to reduce CGT, especially attractive where new realised gains are taxable at 28%.

Move assets to spouse or civil partner to reduce tax, income and CGT, where one is a lower rate taxpayer than the other.

For high earners consider reducing their income level where it can be managed through pension contributions or gift aid. The loss of the personal allowance for income over £100,000 may create an effective tax rate of 60% for such clients.

Inheritance tax revenue has fallen in recent years, mainly due to the introduction of the transferable nil-rate band, but additional planning around the £3,000 annual exemption and underused normal expenditure out of income should still also be considered.

Potentially exempt transfers (PETS) are mentioned in the OTS report. Although there is no suggestion that they will be removed, clients considering making PETs, either directly or via a trust, should consider doing this sooner rather than later.

December also brought us details on the new pension regime from April 2011 which further altered the already complicated funding rules. A full analysis of the changes and planning considerations can be found on our Knowledge Direct website.

The normal pension funding opportunities exist, such as a pension for non-working spouses or civil partners, up to £3,600 for children and the use of a pension contribution to extend an individual’s personal allowance threshold (which may reduce income and capital gains tax). There are additional planning opportunities which may need action before or after tax-year end. 

Clients subject to anti-forestalling may be restricted in terms of fully relievable contributions to the special annual allowance of £20,000 or the infrequent money purchase threshold of £30,000. Not only will they be able to fund the £50,000 Annual Allowance for the 2011/12 tax year but they can also carry forward any unused allowances from the previous three tax years.

For these clients such contribution should be paid into an arrangement where the pension input period can be terminated in this tax year to align the contribution with the 2010/11 Annual Allowance. This will enable them to fully benefit from the carry forward provisions that will apply from the beginning of the next tax year when the new Annual Allowance threshold comes into effect.

For either of these client segments this year’s entitlement can be paid to any registered pension scheme and discussion regarding potential transfer opportunities from existing non Skandia arrangements can proceed without issue.

For others in this segment with higher regular protected pension inputs, the beginning of the 2011/12 tax year opens up potential transfer opportunities that do not currently exist when the protected pension input regime falls away.

For employed individuals who are not subject to the anti-forestalling regime, it may be possible to use the 2010/11 Annual Allowance through use of employer contributions, and possibly some personal funding. Up to £255,000 is available provided the contributions are made into an arrangement where the pension input period ends on or before 5 April 2011.

Financial planning is an all year round activity, but utilising allowances which would otherwise be lost makes great sense for clients and demonstrates the added value that informed advice offers.