The taxman takes as much as £4 in every £10 of our savings or our earnings. Yet,
with a few easy tax-planning measures it is possible to avoid at least some of these
taxes and cut the tax you pay, giving a healthy boost to the returns for you, your
family, and your business. We as Independent Financial Planners are always aware
of the need to take the client´s tax position into account in our consideration of
their circumstances. The Financial Services Authority does not regulate some forms
of tax advice or will writing. The areas we will look at are:
Inheritance Tax - Not
many people think about Inheritance Tax (IHT) or are even aware it exists. After
all, it's not something that normally affects us whilst we're alive. For those that
are aware of it they sometimes think that only the wealthy or elderly need to worry
about it. But you do not have to be rich for your estate to be subject to Inheritance
Tax. It is levied on everything you leave over the nil rate band. We advise on
- drawing up and reviewing your will
- making full use of exemptions and reliefs on lifetime transfers
- optimising lifetime transfers between spouses
- transferring assets into trust
- arranging adequate life assurance to cover potential inheritance tax liabilities
Writing a will - A fundamental part of Inheritance Tax planning is to make or review
a will, for example to ensure nil rate bands are properly utilised and that more
complex trusts are correctly set up. Making a will is essential if you want to ensure
your money goes where you intend it to after you die. It is also a good way to ensure
that your family do not pay more inheritance tax than they need to.
Life policy payouts
- most are free of income tax. When you die, the proceeds of your life insurance
policy are paid to your beneficiaries, and may be subject to inheritance tax (IHT).
This could result in a tax charge of 40% of your estate. There are a whole host of
ways in which we as an IFA can help you minimise the amount of IHT your heirs will
face. For example, it may be possible to arrange your life insurance in such a way
that the proceeds remain outside your estate, and can be used to meet the IHT liability
arising from other assets.
Tax advantages of Investment Bonds - you can draw a regular
income. Within certain limits this income is free of immediate tax and if you are
a basic rate payer, may remain free of all tax. If you are a higher rate taxpayer,
you need to take our advice on this type of investment, as there are particularly
problems you will face (but can be avoided).
Personal pensions - Pensions are a particularly
good product for tax-conscious investors, because they boost the value of every £1
you invest. Pension contributions give you tax relief at the highest rate you pay.
You
and your employer are able to pay up to one annual allowance for that tax year. This
amount is up to 100% of your relevant earnings each year. Even the non-earner can
contribute (or you could contribute for them) up to £3,600 pa into a personal and
stakeholder pensions. How about starting a pension for your child or grandchild?
Self Invested Personal Pension (SIPP) - where you can manage your own investments.
Can be used by anyone but particularly useful for those who run their own business
as a Sole Trader, Partnership, or Limited Company.
Savings - If you already have
money in a PEP or TESSA Only ISA, there is no need to close that account before you
buy an ISA.
Individual Savings Accounts (ISAs) - Every UK resident adult should consider
taking out a tax-efficient Individual Savings Account (ISA). This investment allows
you to save up to the limit per year without having to pay tax on either the income
the investment generates or its capital growth.
Bonds - Government bonds - known
as "gilts" - and bonds issued by individual companies work in the same way. Both
corporate bonds and gilts can be wrapped inside an ISA to save tax. Investments like
these are available as part of your equity ISA allocation for the year.
Capital Gains
Tax (CGT) - gains on your investments - you can make gains up to the annual allowance
above which you are charged at up to 40% some reliefs e.g. taper relief are available
and you should consult us when you decide to cash in your investments. The taper
reduces the amount of the chargeable gain according to how long the asset has been
held.
There are products available, which offer capital gains tax breaks we can discuss
these options with you if they are appropriate.
Ten tax-saving steps
- Tax relief on pensions - Max up your pension contributions before the end of the tax year to gain generous tax relief and then benefit from the tax efficient treatment of pension funds.
- An ISA’s nicer - Individual savings accounts are great for tax breaks if you are saving or investing.
- Use your other half - A higher rate taxpayer can save tax by transferring money into a lower earning - or non-earning - spouse´s name.
- Make a will - It is the only way to be sure your loved ones do not miss out on their inheritance, and to limit the tax paid on your estate.
- Check your code - Make sure you have the right tax code or you could be paying over the odds.
- Rent a room - Many people raise extra income tax-free by renting out a room in their home.
- Do not be stamped on - You can save literally thousands if you negotiate with the person you are buying a house from to drop the price below stamp duty thresholds.
- Company car? - Fill in a form to declare it as a taxable benefit. Broadly speaking, the smaller the vehicle, the less tax you will pay.
- Made a gain? - Make sure you take full advantage of your annual capital gains tax exemption limit.
- Keep it in the family - The kids get their own personal tax allowance too, and you can set up tax-efficient trusts for children or grandchildren
