Why gift the Inland Revenue £5.7bn? Exploit your tax breaks now

ISAs

The countdown to the close of the 2004-05 financial year is on, with just nine days to go. So get your skates on to make sure you squeeze the most from the tax breaks available to you.

The countdown to the close of the 2004-05 financial year is on, with just nine days to go. So get your skates on to make sure you squeeze the most from the tax breaks available to you.

Every year, our inefficiencies lead us to gift some £5.7bn in unnecessary payments to the Inland Revenue, according to IFAP, a body for independent financial advisers.

A little time spent on your finances before 5 April could help you cut your tax bill for this year - and perhaps next year too.

Transfer savings

Use the £4,745 personal tax allowance. For married couples, if one partner either doesn't work or earns a lot less than the other, any savings or investments could be transferred into the name of the lower earner to minimise tax on interest and dividends.

You can invest up to £7,000 tax-free in an equity individual savings account or split it into £3,000 in a mini equity ISA, the same sum in a mini cash ISA and £1,000 in an insurance bond ISA. (Changes from the start of the new tax year on 6 April will let you invest £4,000 in a mini equity ISA.)

Pension contributions

If you can afford to, make full use of pension tax relief - a percentage of your salary that, depending on your age, you can put into your retirement fund.

For example, those aged 36 to 45 can invest up to 20 per cent of their income in a personal or occupational scheme - and will get 22p from the Government for every 78p invested.

If you earn £30,000 or less and are already in a company plan (and not a controlling director), you can also invest up to £3,600 in a separate stakeholder scheme.

Capital gains tax

Under the annual capital gains tax allowance, if you make investment gains on the sale of a second property or a large shares portfolio, you won't be liable for tax on the first £8,200. Married partners should split the assets between themselves to make use of both sets of allowances.

If you've made a shares loss over the past 12 months and are prepared to sell them, you can offset this loss against a gain elsewhere - on the sale of a buy-to-let home, for example - to reduce your overall tax liability.

Inheritance tax

Each year, you can give away up to £3,000 - either in one lump sum or split between friends and family - which will be excluded from the taxman's call on your estate. Any number of small financial gifts can be handed out on top of this sum, as long as each is worth no more than £250.

Trusts, pre-owned assets

Anyone who has sold or given away an asset, such as a home, but still enjoys the use of it could be hit with a new income charge from 6 April.

Those who passed on part of their home to a family member via a trust before Monday 6 March will probably face the new charge. Since circumstances will differ, professional advice can guide you through the financial implications.

Francesca Lagerberg is national tax director at Smith & Williamson, the accountancy and financial advisory group. Contact: 020 7637 5377 or www.smith.williamson.co.uk