• If you are a higher-income spouse in business, you could pay your spouse a salary, on which you would obtain tax relief. If you want to avoid having to keep PAYE records, the salary must be below the national insurance contribution (NIC) limit of £334 a month in 2003/04. However, a monthly salary between £334 and £385 will allow your spouse to qualify for state benefits, such as the retirement pension, without paying any NIC. The remuneration must be justifiable in relation to the work done. There is evidence that the Inland Revenue is tightening up in this area.
• As well as salary, you could pay up to £3,600 gross in 2003/04 as an employer's contribution to your spouse's personal pension plan. There is no tax and NIC on the payment and it would be an allowable business expense.
• The profits of your business could be shared by operating as a partnership. You both need to be genuinely involved as partners, and a written partnership agreement is advisable, together with a joint business account.
• Your spouse could be a shareholder in your company and receive dividends. The 10% tax credit on dividends cannot be recovered; so your spouse would also need non-dividend income to benefit from the personal allowance. However this strategy does present some risk. In a few cases the Inland Revenue has argued that where the dividend arises entirely as a result of profits generated by one spouse, the working spouse is liable to tax on the dividends paid to both spouses.
• You could transfer investment income by switching ownership of the asset that produces it, although this may have its main effects in future years. This could also save capital gains tax when the assets are sold, if one spouse generally pays tax at a lower rate than the other or is likely to have an unused annual exemption or capital losses. You should leave as much time as possible between the transfer of the assets and their sale.
• You could transfer savings into joint names so that half the income is taxed on each spouse.

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• You might be able to choose to take a bonus or dividends - either before or after the end of the tax year - depending on your tax rate in each year.
• If you always pay higher rate tax, in theory delaying a large dividend until after 5 April 2004 could give you another year before you have to pay the tax. However the government has signalled changes in the taxation of owner-managed companies, which might increase tax liabilities where dividends are paid after 2003/04. Details are expected in the spring 2004 Budget, but remember, any changes could take immediate effect.
• If you hold share options, you should consider your tax position together with the investment issues when deciding whether to exercise the options now or in a later tax year.
• This is a good time to review whether it is worthwhile having a company car and, if so, whether your employer should provide fuel for your private travel.
• If your business is affected by the personal service company rules (IR35), you need to calculate how much salary to draw before 6 April 2004 if you want to avoid being taxed on a 'deemed payment'.
• If you are planning to work abroad for more than a year, you should try to leave the UK before 6 April 2004. You need to be away from the UK for a whole tax year for the income from working abroad to be free of UK tax.

• Almost every individual working or living in the UK can take out personal pensions, including stakeholder pensions, and contribute up to £3,600 gross a year. The main exceptions are controlling directors and, broadly speaking, people in pensionable employment who earn more than £30,000 and have no other earnings.
• You could set up a personal pension for your spouse or your children so they can benefit from tax relief at 22%, even if they do not actually pay any tax.
• You can contribute more than £3,600 if you have enough earnings. You can pay between 17.5% and 40% of net relevant earnings (NREs) to a personal pension scheme, depending on your age. You can base the payment on NREs for the current tax year or any of the previous five tax years, but only NREs up to the earnings cap count: £99,000 for 2003/04. There is currently no earnings cap restriction for retirement annuities (old-style personal pensions you could take out before July 1988), but the percentages are generally lower and there are other differences in the rules.
• If the pension tax changes go ahead, individuals will be able to protect themselves from the proposed 25% recovery charge on drawing pension rights worth more than the lifetime allowance (currently set at £1.4 million on 6 April 2005). If your fund is near or above this allowance, you might benefit from paying in as much as possible in 2003/04 and 2004/05 in order to maximise the protected fund.

• On business assets, taper relief reduces a gain by 50% after one year's ownership and 75% after two years. Maximum taper relief results in an effective tax rate of 10% for a higher rate taxpayer. Broadly speaking, business assets are those used in a business, shareholdings in unlisted companies and most employee shareholdings. After two years' ownership of a business asset, delaying a sale will not result in any further reduction in the gain.
• Non-business assets qualify for taper relief at the rate of 5% a year from the third year of ownership, except for assets owned on 17 March 1998, which qualify for an extra 5%. So if you can delay the sale of an asset you owned on 17 March 1998 until 6 April 2004, your taper relief will increase from 20% to 25%.
• Losses are set against gains before the taper relief reduction. The benefit of losses is therefore reduced if they arise in, or are carried forward to, a year when they have to be set against highly tapered gains. Careful timing of gains and losses, where possible, can reduce the amount of tax you have to pay.

• A maxi ISA must offer a shares element and can currently include up to £3,000 cash and £1,000 in a life insurance policy.
• Mini ISAs include just one of the three types of investment. Up to £3,000 can be invested in a mini stocks and shares ISA, £3,000 in a cash ISA and £1,000 in a life insurance ISA. You cannot invest in both a maxi ISA and a mini ISA in the same tax year.
• From 6 April 2005 there will be no separate insurance element, but a wider range of investment products will be available. The limit for a mini stocks and shares ISA will rise to £4,000.
• The original capital from a matured TESSA can be reinvested into an ISA in addition to the usual limit. As new TESSAs were no longer available after 5 April 1999, the last 'batch' of TESSAs will have matured by 3 April 2004.
• 16 and 17 year olds can contribute to a cash ISA, so you may wish to provide funds for grandchildren or other relatives that they can invest as soon as possible. If a parent provides funds for a child's ISA, the income from that ISA will be taxed on the parent if it exceeds £100 a year.

• Income tax relief is given at 20% on sums of up to £150,000 invested in a tax year. The government proposes to increase the limit to £200,000 from 6 April 2004.
• Gains on investments made since 6 April 2000 escape CGT after three years.
• It is possible to defer CGT on a gain of any size on a disposal of any asset by reinvesting in shares that qualify under the EIS.

• You can get tax relief for any gifts to charity if you make a gift aid declaration. You deduct tax at 22% from the gift and the charity benefits by claiming this tax back. Higher rate taxpayers can claim additional tax relief of 18%.
• You can elect for donations made in 2003/04 to be treated for tax purposes as if they had been made in 2002/03. This will benefit you if you were a higher rate taxpayer in 2002/03 but not in 2003/04. The election must be made in writing with or before making your 2002/03 tax return and this must not be later than 31 January 2004.
• If your employer has a payroll giving scheme, you can give any amount by direct payments from your salary before tax. The government pays the charity a 10% supplement on such donations up to 5 April 2004.

• Gifts of up to £3,000 a tax year are exempt from inheritance tax. If you made no gifts to use this exemption in 2002/03, you can make inheritance tax free gifts of up to £6,000 before 6 April 2004.
• Regular gifts out of excess income could also be exempt. You need careful documentation to prove such gifts are income rather than capital.

• Making sure you have enough money to meet your personal and business needs.
• An investment must be a good investment and not just tax-efficient.
• Some tax-saving actions involve risks.
• Flexibility is almost always desirable, even if it involves costs or saves less tax.
• The costs and general inconvenience of implementing some tax-saving strategies might not always be worthwhile.

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Disclaimer

This report has been written for the general interest of our clients. It is therefore essential to take advice on specific issues. We believe that the facts are correct as at January 2004, but there may be errors and omissions for which we cannot be held responsible. The value of investments and the income from them can go down as well as up and you may not get back the full amount you invested. Past performance is not necessarily a guide to future performance and may have been achieved in a favourable economic period that may not be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. The levels, bases of, and reliefs from taxation may be subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.