Simple but Effective Strategies to Consider for Your Tax-Year Planning; Taking a Financial Look at 2010

Article excerpt

Byline: andrew farr

HANDS up those investors who will be quite glad to see the back of 2009. As far as I can make out, the only two things in abundance were optimism and disappointment, as expectations of a recovery stuttered time and again.

So, at this time of year, it can't hurt to have a look at the landscape before us in 2010 and, as a rudimentary guide for investors, here's the first part to a look at some of the events happening in the coming year and at some financial planning opportunities that may arise as a consequence.

Income tax There will be no changes to the rates of tax at 20%, 40% or 50%, but no lowering of the threshold above which the 50% additional rate is borne (pounds 150,000 from April 6 2010) will provide a relief.

Don't forget that tax allowances and thresholds will be frozen in 2010/11, and that personal allowances will be removed at the rate of pounds 1 for every pounds 2 of income over pounds 100,000 until the personal allowance is fully removed. This also begins on April 6. If you are planning your tax year, consider simple but effective strategies such as growth-based investments; maximising allowances between couples; receiving or becoming entitled to income in the current tax year rather than 2010/11, such as through dividend payments and bonuses; and triggering investment bond gains in 2009/10 rather than 2010/11.

Capital Gains Tax No changes were announced for the coming tax year, and there had been a relatively strong expectation that we would see an increase to the current 18% rate because it is some way lower than the 40% and 50% income tax rates.

However, nobody should discount any government from taking this step in the future. Meanwhile, remember that the individual CGT exemption stands at pounds 10,100 and, given the negative rate of RPI, this could be frozen for 2010/11.

If you are planning the year ahead, bear in mind that the retention of the 18% rate continues to offer a huge tax incentive to invest in investments and structures that produce a capital gain as opposed to income - but make sure you strike an appropriate balance between investment appropriateness and tax effectiveness.

In addition, maximising couples' and families' CGT exemption can further enhance tax effectiveness, while entrepreneurs' relief remains at 10% (up to a "lifetime" cumulative pounds 1m), so a business owner strategy of "self investment" remains extremely tax attractive - especially with the additional rate of 50% on income for high earners. …