Tax Planning prior to 5th April 2007 - Capital gains and inheritance tax
March 2007
Inheritance Tax
Nil rate band trusts - A simple review of a Will can be a good place to start. As property may well be the main asset, you may need to think about whether you are properly using your Nil Rate Band for IHT (currently £285,000). Wills can be arranged which ensure that couples can effectively plan so that on the death of, say, the first spouse their Nil Rate Band is fully used up.
Annual Gifts - There is the annual IHT exemption of £3,000 to consider. This is often unused and becomes £6,000 if last year's allowance remains available. Separate gifts of up to £250 can be made to any number of individuals in a tax year and there are a variety of gifts which can start the 7 year 'clock' running for "potentially exempt transfers".
Capital Gains Tax
Annual Exemption - fully utilise the annual exemption for 2006/07 of £8,800.
Bed & Breakfast - It is not possible to ‘bed and breakfast ’investments (sell and buy back the same shares to release gains or losses) unless the repurchase is over 30 days later. However, there are alternatives such as ‘bed and spousing’ (selling your shares and your spouse buying them on the open market) and ‘bed and ISAing’ (selling shares and your ISA buying shares).
Other inter-spouse transfers - If your spouse has unused capital losses or annual exemption, you could consider transferring (unconditionally) shares with in-built gains to him or her prior to a disposal. The losses and exemptions can then be set against the gains made - the computation of gains and application of losses can be a complex process and advice should always be taken before considering this strategy.
Deferring disposals - Sometimes it is worth deferring disposals until after 5 April to obtain more taper relief and to defer tax payments by one year. Be aware that the Chancellor could raise the tax rate in a different tax year although there are no rumours that anything like this is planned at the moment.
Negligible value claims - It is worth reviewing investments to see if any have become of negligible value. If appropriate the capital loss can be claimed to reduce current year gains.
