End of year financial tax planning for contractors

The end of the tax year is approaching fast (5th April 2012) but there is still time to fill your Personal Pension allowance, as well as your ISA allowance(s) for the 2011/12 tax year.

It's also not too early to be thinking about your 2012/13 allowances.

Read about ways to extract monies from your limited company tax efficiently.

Pensions:

• The personal pension Annual Allowance for the 2011/12 tax year is the greater of £3,600 or 100% of earnings, up to a maximum of £50,000.• The new pension "Carry Forward" rules are extremely useful, allowing you to contribute any unused annual allowance from the last three years.
• Using 'Carry Forward' high earners and business owners can contribute up to £200,000 tax efficiently into a pension, using unused allowances of the last 3 years. 
• For people earning over £100,000, there is an opportunity to make pension contributions to get back your lost personal allowance.

ISAs:

• The allowance for a Cash ISA is currently £5,340. Or, you can invest the full £10,680 into a Stocks and Shares ISA.
• If you don't use your allowance before 5th April 2012, you will lose it, so those who can contribute should consider doing so.
• The current ISA allowance of £10,680 will increase to £11,280 on 6th April 2012. This can be split between cash and equities or purely put in equities.
• Junior ISAs were launched in November 2011, aimed at children under age 18 who do not already have a Child Trust Fund.

Inheritance Tax Planning:

• You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year and it is in addition to the gift exemption in the current tax year, so you can gift £6000 in this case, before 6th April 2012.
• Remember that regular gifts out of excess income can also be exempt.

Save Capital Gains Tax (CGT):

• Each year an individual has an annual exemption to gains that are free of tax. This year it is £10,600.
• An individual can realise total net capital gains (gains less losses) of up to £10,600 from 6th April 2011 to 5 April 2012 without incurring a CGT liability. The exemption is an annual allowance and cannot be carried forward. Spouses can also gift assets to each other without incurring a CGT charge.