Act now, for the end of the tax year is nigh

Wednesday, 5 April, is the end of the 1994/95 tax year. In many cases it is the last day on which taxpayers can take action to reduce their tax bill for the year.

However, since the most effective financial planning takes place early in the tax year, the year-end also offers a good opportunity to review your strategy for 1995/96 . The principles of good tax planning do not change. By following a few basic rules taxpayers can save themselves money.

And while self assessment - the regime under which individuals will be responsible for calculating and paying their own tax - does not come in until 1996/97, it is worth getting used to working out how much tax you should pay. The Inland Revenue has been known to make mistakes.

The overriding objective is to make maximum use of all available allowances. This means considering the transfer of income-producing assets to other family members if your own allowances have been exhausted.

You should also consider whether to defer income to the 1995/96 tax year (if you think tax rates will go no higher) or, where possible, to bring allowances forward.

Income and personal allowances

Calculate an estimated income for both 1994/95 and 1995/96. For husbands and wives this will show whether they are making the best use of their personal allowances and lower-rate tax bands. Ideally, each spouse should have enough income to absorb their personal allowance of £3,445 in 1994/95 (£3, 525 for 1995/96) and lower rate tax bands of £3,000 (1994/95) and £3,200 (1995/96).

For many couples, income - say, from employment or a pension - is simply not transferable. Consider transferring ownership of income-producing investment assets if one spouse is not using his or her full allowances. Alternatively, the joint tax bill can be reduced if the non- earning spouse can be paid a salary from the other's business.

The annual individual capital gains tax exemption is £5,800 in 1994/95 and £6,000 for 1995/96. Where asset sales are likely to generate material capital gains in 1994/95 there are a number of options available before the 5 April deadline.

Consider delaying a sale - either in whole or in part - to 6 April. Selling part of an asset on 5 April and the rest on 6 April attracts two sets of CGT exemptions. Postponing asset sales beyond 5 April delays CGT for a full year. Alternatively, part of the asset can be transferred to a spouse with spare CGT exemption. It is possible for a married couple to realise tax-free gains of up to £23,600 using both 1994/95 and 1995/96 allowances.

If you own an investment portfolio, unused CGT exemptions can be mopped up by "bed-and-breakfasting'' the shares - selling them and buying them back the next day. This has the effect of locking in unused CGT exemption into the portfolio, reducing the eventual charge to capital gains tax.

Any investment losses can be carried forward to offset against future gains although losses created by using the indexation allowance - designed to make sure that you do not pay tax on gains from inflation - will not qualify after 5 April.

Pension fund contributions represent the most tax-efficient form of saving - yet most taxpayers are unable to take full advantage of the rules.

The maximum tax-free contribution permitted by the Revenue to company schemes is 15 per cent of salary, although this is restricted for some higher earners. This leaves plenty of room for additional voluntary contributions (AVCs) offered by company schemes or, if you are unhappy with the investment performance, free-standing AVCs.

The tax-free contribution ceiling on personal pension contracts is 17.5 per cent of net relevant earnings if you are under 35 and rises to up to 40 per cent with age. If you pay personal pension or retirement annuity premiums you should try to allocate premiums paid to the years in which you pay the highest tax.

Individual taxpayers are allowed two personal equity plans (PEPs) each year, one general and one single company. They are also allowed to hold one Tessa - a five-year bank or building society deposit account that pays tax-free interest. The allowances are shown in the table.

Other investments should be reviewed to see whether they are still tax- efficient. Check also that you have exercised any share options within Revenue-approved time limits.

The Revenue applies strict time limits on claiming certain reliefs. By 5 April you must have:

9 made your 1995/96 election for transferring married couple's allowance;

9 made your 1993/94 election for transferring qualifying interest payments to wife or husband;

9 made 1992/93 election for relief on Business Expansion Scheme investments;

9 made 1993/94 election on maintenance payments;

9 claimed for 1992/93 losses in unquoted shares.

PEP maximum investment General PEP: £6,000; Single company PEP: £3,000

TESSA maximum investment £3,000 in year 1, £1,800 in years 2 and 4, £600 in year 5 (or up to £1,800 if less than £3,000 was contributed in year 1)

Reinvested TESSAs £9,000 in year 1

Capital gains tax Annual exemption £5,800 for 1994/5, £6,000 for 1995/6

Inheritance tax Annual exemption on lifetime gifts £3,000 per annum. (To the extent that you have not used this exemption in full in any one tax year, you can carry it forward and add to the exemption for the next tax year only, increasing that year's exemption to £6,000)

Inheritance tax Small gifts exemption £250 per person. This allowance is a maximum gift to each person, for all gifts throughout the year

Enterprise Investment Scheme Maximum subscription £100,000 in any tax year. Minimum £500. If you subscribe for shares between 6 April and 5 October you can elect for half of the subscription to be carried back to the previous tax year up to a maximum of £15,000

Venture Capital Trusts Maximum subscription £100,000 in any tax year from 1995/96

Source: Ernst & Young