9 Tax Planning Tips
We all have to pay our taxes. Arguably we should be happy to pay a certain level of taxes to maintain the services we, and our families use. But why pay more than you need to? Especially when there are numerous ways you can maintain your investments and minimise your tax bill using perfectly legitimate, mainstream strategies.
These are just 9 of the most common areas to consider.
Maybe some aren’t relevant to you, but there could be others, not mentioned here, which are… it’s all down to your individual circumstances, which we can advise on in detail if you give us a call.
1. Your personal allowance… are you using your full allowance? And what about your spouse or partner? Remember… you can transfer income-producing assets between spouses and registered civil partners to maximise your use of allowances.
2. Personal allowance for high earners… reducing your taxable income below £100,000 or £150,000 will reduce your tax liability. Consider moving investments which generate income from taxed to tax-efficient environments; making charitable donations which qualify for Gift Aid or using investment structures which qualify for significant tax rebates.
3. Tax relief on pension contributions… the annual allowance for tax-relievable pension contributions is currently £40,000, so why not use it all, or as much as you can? You can also carry forward unused annual allowances from the previous three tax years, so with a little planning, you could achieve tax relief on up to £160,000.
4. Tax-relievable pension for high-earners… for high earners, the annual allowance definition is far more complicated, reducing according to your ‘adjusted income’ and ‘threshold income’ levels. Safe to say, it’s worth taking advice!
5. Your pension lifetime allowance… if you have a pension pot in excess of £1 million, then there are circumstances in which you may become liable to additional taxes of up to 55% on the excess. You could consider using ‘drawdown’ income to keep within the lifetime allowance, although your Income Tax liabilities will need to be taken into consideration too.
6. Use your ISA allowance… ISA savings are free from Income and Capital Gains Tax; and you can invest up to £20,000 per person or £40,000 per married couple for the 2017/18 year. Junior ISAs are available for UK residents under the age of 18 who don’t have a Child Trust Fund account.
7. Other tax efficient investments… in addition to ISAs, investing in Enterprise Investment Schemes (EISs), Seed Enterprise Investment Schemes (SEISs) and Venture Capital Trusts (VCTs) can significantly reduce your tax bill. They can also provide attractive investment returns, but are considerably higher in risk than ISAs, so should be discussed with your adviser.
8. Capital Gains Tax… using your annual Capital Gains Tax exemption (currently £11,300) can save you up to 28% Capital Gains Tax.
9. Inheritance Tax (IHT)… you can gift £3,000 free of IHT every year and make use of any unused portion of that £3,000 from the previous year too… so that means you could make a gift of up to £6,000 (£12,000 per couple) outside your estate for IHT purposes.
Above all… don’t procrastinate!
The tax year ends on 5th April 2018, so if you haven’t started planning yet, you need to act now or you could miss out. Contact us if you need to do some last minute tax planning before it is too late!