Cruellest month? April is fine for your finances

Francesca Lagerberg on tax planning ahead of the year-end

Endless publications are available to help us inch our way towards better physical health, but there is less guidance on getting into good financial shape. Just as gyms and health clubs are packed out after Christmas and just before the summer holidays, now is the time of year to be putting your finances through their paces.

Endless publications are available to help us inch our way towards better physical health, but there is less guidance on getting into good financial shape. Just as gyms and health clubs are packed out after Christmas and just before the summer holidays, now is the time of year to be putting your finances through their paces.

Two important events are on the horizon. Coming up is the end of the tax year (5 April), which means it's our last chance to take advantage of some of the available exemptions and reliefs. We are also nearing the Budget, when the Chancellor may have a few surprises in store.

With tax planning, it's best to start with the simple things. Maximise your family's income by ensuring that you and your spouse make use of lower tax bands and all your tax-free allowances. This can be achieved by transferring savings accounts, shareholdings or other assets to the lower-earning spouse or into joint names. It may be too late to reduce the tax bill for the current year, but you can at least save money in 2003-04 by acting now.

Take a careful look at your circumstances and review your will. Does it still do what you want it to and does it take account of your current situation and assets? Consider taking advantage of tax regulations that let each person give away £3,000 per tax year free of inheritance tax. If you can afford such gifts and have not made them in the past, you can use both your 2001-02 and 2002-03 allowances (ie £6,000) if you act before the end of the tax year.

If you complete an income tax self-assessment return and needed to make a tax payment on account at the end of last month, and are due to make another this July, review your income for the year as soon as possible. If you genuinely anticipate a fall in profits, you can claim to reduce these tax payments. If you overpay, you'll have to wait to get the money back, and the Inland Revenue will not pay interest unless the refund is delayed beyond January 2004.

However, if you reduce a payment on account by more than you should, interest will be charged on the difference from the date payment was due.

The new Child Tax Credit and Working Tax Credit come into effect on 6 April 2003. Check if you are eligible to claim (you may be pleasantly surprised) and get your form in soon, as claims can only be backdated by three months.

If you have cash investments, you may benefit by using your individual savings account allowances for 2002-03. These can't be carried forward.

Also consider making full use of the current year's pension relief by 5 April 2003. And don't forget the capital gains tax annual exemption of £7,700 for 2002-03, which may be useful if you are thinking of selling an asset before the year-end.

Although we do not know precisely what the Chancellor will do in his forthcoming Budget, we will soon feel the full blast of his initiatives from previous years. From 6 April, for example, national insurance contributions (NICs) are going up.

Employees earning up to £60,000 per year face increases in NICs of 10 per cent. Those with salaries of between £60,000 and £100,000 will have to deal with NIC increases of 23 per cent, and anyone earning in excess of £100,000 per year will suffer a 39 per cent rise in NICs.

These growing costs are not softened by increases in personal allowances across the board. Instead, most people will find their personal allowance is frozen at £4,615 for the coming year.

To mitigate against the national insurance increases, consider advance payments of salary or bonuses before the year-end. There will be NI to pay but it will be at this year's lower rates, so your overall NI payment will be less than if you leave everything until the next tax year.

For a free information sheet on year-end tax planning, go to www.smith.williamson.co.uk/publications.shtml

Francesca Lagerberg is national tax director at Smith & Williamson, the professional and financial services group: 020 7612 8858.