In his November Autumn Statement, chancellor George Osborne confirmed the difficulties the economy faces and effectively emphasised the need for partners to reappraise their financial planning and the tax-efficiency of their finances. There is no better time to do this than at the start of the new year! Here are some strategies and points to keep in mind:

Pension contributions 2011/12

Pension contributions are one of the most tax-efficient long-term investments partners can make, and the rules for the maximum contributions that can be made tax-effectively changed from 6 April 2011.

Tax relief is now restricted to pension contributions of up to £50,000 a year (the new Annual Allowance (AA)). This figure is the gross equivalent. Contributions are paid net of a deemed withholding of 20% basic rate tax. The tax relief available is confirmed to be at your marginal rate.

Any unused AA is carried forward for up to three years for future use as long as you had a fund in existence in the earlier years. The three-year carry forward rules mean that some partners might be able to invest up to £200,000 (gross) into their pension arrangements and obtain 50% income tax relief thereon.

Lifetime allowance change and election

A lower lifetime allowance (LTA) of £1.5m (reduced from £1.8m) will apply from 6 April 2012. Partners have until 5 April 2012 to make an election for the old £1.8m LTA to continue to apply - this election can only be made if you then cease to make any further pension contributions.

Pension Input Periods (PIPs) - important hidden detail

The AA applies to contributions paid in a pension scheme’s PIP, which ends in the tax year. Each of your pension arrangements will have their own PIP and their annual period end may not be 5 April each year. If they have a different end date this may give rise to problems.

Unfortunately, many don’t know the annual year-end of date of their PIP, and the immediate concern is that your scheme PIP which ends in 2011/12 may have already ended! So, contributions you make between now and 5 April 2012 may use your 2012/13 AA rather than your 2011/12 AA. You really do need to know your PIP when determining your contributions over the next few months - particularly if you are looking to use your three-year brought forward capacity.

Other tax-favoured investments - ISAs, EIS and VCT

Each adult is able to invest up to £10,680 into an ISA (Individual Savings Account) each tax year. There is no tax relief on the investment. The attraction is that any growth is Capital Gains Tax (CGT) free and income in the fund is exempt from income tax, as are dividends or interest distributed out. Subscriptions into EIS (Enterprise Investment Scheme) qualifying shares are tax-favoured investments. 30% income tax relief is available on such investments of up to £500,000 each tax year. There are also CGT and Inheritance Tax (IHT) benefits. Investments in Venture Capital Trusts (VCTs) of up to £200,000 each tax year generate 30% income tax relief.

Gift Aid - are you getting your full tax relief?

Many know that charities get basic rate tax relief refunded from the government on donations made via the Gift Aid scheme. What seems less well known is that partners are entitled to higher rate tax relief on their Gift-Aided donations (when claimed via their tax return). High-earning partners can thus get 50% tax relief on their donations, which might motivate some to be more generous, and others to be better at recording the Gift-Aided donations they make.

Partners retiring shortly

Partners about to retire should pay particular attention to whether their tax rate will be lower in retirement or in the lead-up to retirement. This may provide added incentive to increase pension contributions and to accelerate Gift Aid contributions, before their income level and marginal tax rate falls.

Spouse planning

This relates to financial planning within the family structure, rather than relationship planning. Where one spouse has a lower tax rate than the other, then investment income (interest or dividends) suffers less tax if the asset is held in the name of the spouse with the lower tax rate. Conversely, Gift Aid donations are more tax-efficient if made by the more highly taxed spouse.

Use of the annual CGT exemption

Each of us has an annual CGT allowance of £10,600. This enables us to realise gains of £10,600 in 2011/12 tax free. As spouses can transfer assets between themselves CGT-free in most instances, it can be possible to realise gains of £21,200 tax free between them.

CGT main residence elections

A capital gain on selling your sole home is tax free if it and its grounds do not exceed half hectare. Where you own two residences, for example a holiday home or midweek flat together with the main home, the main home will continue to be exempt. However, dual exemption for a period can be engineered on more than one residence where an election is made within two years of acquiring the second home. If this might apply to your circumstances, speak to your tax advisor.

Non-domiciliaries

The chancellor confirmed in November that the charge for a non UK-domiciled individual to be assessed to tax on the ‘remittance basis’ would increase to £50,000 (from £30,000) once they have been resident in the UK for 12 of the previous 14 years. This change will be effective from 6 April 2012.

Statutory residence test

Early in 2011 the chancellor announced that he would consult on the introduction of a statutory residency test from April 2012. The proposals in the consultation document were generally well received, but it has been concluded that due to drafting difficulties, the introduction will be delayed until 6 April 2013.

Louis Baker, head of professional practices group at Crowe Clark Whitehill