March 2011 - Crowe Horwath International

March 2011
Issue 01
News from
Private Clients
Inside this issue
Pre 5 April planning:
Pensions
New rules on tax relief limits
Income tax
Efficient use of rate bands and
allowances can save over £22,000
Tax-efficient
investments
Income tax relief, deferral of CGT and
tax exempt income
Gifts to Charity
Plan your gifts to maximise tax relief
Inheritance tax
Simple annual gifts can save £2,400 a
year
Capital Gains Tax
Use exemptions and losses to save tax
Tax Calendar
Key dates 2011/12

Crowe Clark Whitehill
£22,480 - income tax to be
saved each year through
efficient use of rate bands
Pensions
Pension Schemes remain an important
means of tax-efficient saving for
retirement, but the benefits have been
restricted by a number of complex
changes to the higher-rate tax relief
available, with further changes taking
effect from 6 April 2011.
In brief, if you have total income in
excess of £130,000 for any of the
years 2007/08, 2008/09, 2009/10 or
the current tax year, ‘anti-forestalling’
provisions introduced on 22 April 2009
will apply and tax relief may be restricted
on any pension payments made by you
or your employer in excess of £20,000.
This limit is extended in circumstances
where there was a prior history of
contributions being made before
22 April 2009, dependent on both the
amount and the frequency of those
contributions.
The rules change again from
6 April 2011. From that date, higher-rate
tax relief will be available for everyone
on contributions up to £50,000 each
tax year with the ability to carry forward
unused allowances for up to three tax
years. Importantly, this new
carry-forward provision is deemed to
have been in place for 2008/09, 2009/10
and 2010/11. It may therefore be better
to wait until after 5 April 2011 before
making a large pension contribution.
Additionally, with effect from
13 October 2010, the annual allowance
for pension contributions is reduced
from £245,000 to £50,000. This
allowance applies for Pension Input
Periods rather than tax years and where
these two do not coincide, there is a
risk that the annual allowance can be
exceeded for contributions made since
13 October 2010, triggering an income
tax liability.
Please contact us if you require further
advice on this extremely complex issue.
Please note that all references
to spouses also include
members of Civil Partnerships
Income tax
Ensuring that all allowances and tax bands available to you (and your spouse
if appropriate) are used as effectively as possible is a good starting point when
considering income tax planning. You should therefore consider transferring income
producing assets between spouses to gain maximum advantage.
2010/11 2011/12
Personal allowance £6,475 £7,475
Age allowance (65 to 74 years old) £9,490 £9,940
Age allowance (75 years old and over) £9,640 £10,090
Income limit for age allowance £22,900 £24,000
Income limit for full personal allowance £100,000 £100,000
Basic rate band (20%) £0 – £37,400 £0 – £35,000
Higher rate band (40%) £37,401 – £150,000 £35,001 – £150,000
Additional rate band (50%) Over £150,000 Over £150,000
Charitable donations under Gift Aid or, in some cases, pension contributions can be
made to reduce taxable income.
It is worth noting that a child is entitled to the personal allowance, even in the year of
birth. Where a grandparent provides the funds (e.g. cash deposits) which give rise to
taxable income, the child’s personal allowance is available to set-off against the income.
However, where a parent puts funds aside for their child, any income arising from those
funds will be taxed on the parent unless that income is less than £100 per tax year.
Tax-efficient investments
The Individual Savings Account (ISA) is possibly the best-known form of tax-efficient
investment ‘wrapper’. Although no tax relief is available on the initial investment, no
additional tax is paid on income or capital gains arising within the ISA itself, irrespective
of the length of time the ISA is held. In the current (2010/11) tax year, up to £10,200 can
be invested in a ‘stocks and shares’ ISA and £5,100 for cash-only. Your ISA allowance
cannot be carried forward to the next year, so use it or lose it!
Investments into Venture Capital Trusts (VCTs) and Enterprise Investment Schemes
(EISs) are increasingly popular. Limits are as follows:
Income tax
relief
Many tax allowances and reliefs are
available on a ‘use it or lose it’ basis
- hence the need to review one’s tax
affairs before the end of the tax year.
Limit for
income tax
relief
Minimum hold
period
Other tax
benefits
VCT 30% £200,000 5 years Tax free dividends
EIS 20% £500,000 3 years CGT exempt on
sale
EIS investment also allows a deferral of capital gains realised in the period three years
before to one year following the date of the acquisition of the EIS shares. Any such
gains to the value of the sum subscribed fall back into charge on the disposal of the EIS
shares.
Insurance bonds have become an attractive means by which income tax liabilities
can be managed or deferred. The main attraction is the ability to take a tax deferred
withdrawal of up to 5% a year of the original capital on a cumulative basis (until the
original capital has been exhausted). This provides opportunities to plan further
withdrawals which would be subject to tax in a time which best suits you and when
applicable tax rates are lower.

Private Clients Newsletter March 2011
Use of IHT exemptions can
save £2,400 each year, every
year
Gifts to Charity
Charitable donations made under
Gift Aid can assist in reducing taxable
income levels if your income is above
£100,000, thereby avoiding the
withdrawal of the tax-free personal
allowance and also avoiding the
restrictions on tax relief for pension
contributions if your income is above
£130,000.
Capital Gains
Tax (CGT)
Cash donations can be made after
5 April 2011 (but before you submit your
2010/11 Tax Return) and ’carried back’
to 2010/11, provided that your Tax
Return is filed by 31 January 2012.
Tax relief is also available on the gift of
quoted investments and of UK land and
property to charity. There is, however,
no equivalent ‘carry back’ provision – to
be relieved in 2010/11, the gift must be
completed by 5 April 2011.
Inheritance
Tax (IHT)
The annual exemption for gifts by any
one donor has been £3,000 for many
years now. Consider making use of the
2010/11 annual exemption, together
with that for last year if not already used.
Remember each spouse has his or her
own £3,000 annual exemption. Use
of these exemptions can mean an IHT
saving of £2,400 each year, every year.
Small gifts of £250 to any one donee are
also exempt.
An IHT exemption that is often
overlooked is that for normal gifts out of
income. Such gifts will qualify if they are
made as part of the normal (i.e. typical
or habitual) expenditure of the donor out
of his income, and that after the gifts the
donor is left with sufficient income to
maintain his usual standard of living. For
more details of this exemption please
contact us.
For 2010/11 gains of £10,100 are exempt
from CGT. This annual exempt amount
cannot be carried forward and is lost if
unused in the year.
Ignoring entrepreneurs’ relief (see below),
two rates of CGT apply to gains realised
from 23 June 2010. Capital gains are
treated as the top slice of income, and
those which fall within the basic rate
band (£37,400) are taxed at 18%, with
any excess liable at 28%. Gains realised
prior to 23 June 2010 are not taken into
account in determining whether the 18%
or 28% CGT rate will apply.
In this year of two rates of CGT,
HM Revenue & Customs (HMRC) will
allow individuals to set losses against
those gains taxable at the highest rate of
tax. It may be worthwhile selling assets
to realise a loss. The transfer of an
asset between spouses who are living
together is tax neutral. Consider taking
advantage of this to use a spouse’s
unused annual exempt amount and/or
basic rate band or to realise a loss.
Entrepreneurs’ relief is available on the
disposal of business assets, where CGT
is charged on gains of up to £5 million at
only 10%. There are complex qualifying
conditions for business assets and these
should be kept under constant review as
the conditions must be met throughout
the 12 months before sale.
Deferring selling an asset until after
5 April 2011 will allow the use of next
year’s annual exempt amount, and will
defer the due date of payment of the
CGT liability by one year to 31 January
2013. Alternatively, consider selling part
of an asset in the current year and part
after 5 April 2011 to take advantage of
the annual exempt amounts and basic
rate bands available in both years. The
key date for CGT purposes is the date
of the contract to dispose of the asset in
question.
To use this year’s annual exemption,
consider selling an asset and having
that same asset reacquired by your ISA,
pension scheme or your spouse. Selling
and reacquiring the same asset within
the same 30 day period does not realise
a gain. General anti-avoidance legislation
means that care should be taken when
using alternative strategies to bed and
breakfasting to create losses, and we
recommend you take further advice
from us before doing so.
Capital losses arising in 2010/11 on
the disposal of shares acquired by
subscription in unquoted (or AIM listed)
trading companies may be offset against
taxable income in the year giving tax
relief at up to 50%.

Private Clients Newsletter March 2011
Tax Calendar
Key dates
23 March 2011: Budget day
5 April 2011: 2011 tax year end
6 April 2011: HMRC issues 2011 notices to file tax returns
31 July 2011: Further £100 penalty for late 2010 tax returns
Further 5% surcharge on any unpaid tax for 2009/10
Second payment on account due for 2010/11
31 August 2011: Tax return information to be sent to Crowe Clark Whitehill
5 October 2011: Notify HMRC of chargeability to tax where no notice to file issued
31 October 2011: Deadline for filing paper 2011 tax returns
30 December 2011: Deadline for 2011 tax return if underpayment is to be coded
31 January 2012: Final deadline for on-line filing of 2011 tax returns
Balancing payment due for 2010/11
First payment on account due for 2011/12
28 February 2012: 5% surcharge on any unpaid tax for 2010/11
We hope you find this newsletter of interest.
If you have any queries about any of the
topics covered, please call your regular Crowe
Clark Whitehill contact.
Office locations
Tim Norkett
020 7842 7151
David Ford
020 7842 7297
Tom Elliott
020 7842 7372
Neil Bailey
020 7842 7302
Cheltenham
01242 234421
London
020 7842 7100
Manchester
0161 214 7500
Thames Valley
0118 959 7222
Kent
Maidstone
01622 767676
Tunbridge Wells
01892 700200
Midlands
Kidderminster
01562 60101
Walsall
01922 725590
Associate member of
Crowe Clark Whitehill
Isle of Man
01624 627335
The office in the Isle of Man is Crowe Clark Whitehill LLC. It is a separate,
independent firm and not part of Crowe Clark Whitehill LLP. Accordingly, this firm
cannot be held liable for the acts or omissions of each other.
Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal
entity. Crowe Clark Whitehill LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically
disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. © 2011 Crowe Clark Whitehill LLP
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