Taxing times0

The tax year, as ever, ends on 5 April, which, this year, also happens to be Maundy Thursday. If you don't intend to be financially crucified by Chancellor Brown, you have only three weeks to ensure all your tax breaks and allowances are utilised.

If you need to, sharpen your focus on tax planning with these two statistics:

1. Nearly 3.3 million of us will pay the higher rate of income tax 40% this year, according to the Institute of Fiscal Studies; that's an increase of 1 million since Labour came to power in 1997.

2. A record number of people now fall into the inheritance tax trap current threshold £285,000; research by life office Scottish Widows shows that some 10 million households are now liable to IHT, a 34% increase on last year.

Use it or lose it

Pension contributions, more so than ISAs, now offer the best opportunity for tax relief because of the rule changes last year. This is especially true for higher rate taxpayers; dont forego up to 40% tax relief by failing to contribute to your pension by 5 April. Tax relief is now allowed on any amount of pension contribution, so long as that contribution does not exceed your annual earnings or £215,000 whichever is the higher and does not push your total pension fund value above £1.5 million.

Note though, that there is no longer the 'carry back' or 'carry forward' provision for pensions tax relief. You will have to pay into your pension this financial year in order to gain tax relief on earnings made this year. This could cause difficulties for the self-employed who settled final income tax bills for the 2005/06 year last January; they now have to guess the amount of higher rate tax that will be paid, before their tax bill is assessed, if tax relief through pension contributions is to be maximised.

Remember too that you get 40% tax relief only on income above £38,485 if you have the standard personal allowances. Paying the difference between that figure and what you earn into a pension plan will automatically generate the 22% basic rate tax credit, but you will have to reclaim the extra 18% by completing a self-assessment form. A recent report estimated that half a million pensions savers could collectively be missing out on as much as £3 billion in higher rate tax relief because of failure to claim through the self-assessment system.