The goal of tax planning is to arrange your financial affairs so as to minimise the amount that you or your family will pay in taxes, now and in the future. Astute financial planners should always have one eye on the tax implications of recommended strategies and actions.
An important starting point is to be aware of your allowances and opportunities to save tax, so that we can organise your affairs in a tax efficient way. We are all familiar with income tax, but National Insurance is simply a form of tax that can sometimes be reduced.
As part of a financial review we would check your tax code and explain how to recognise when it is not correct.
When placing savings and investments we aim to minimise both income and capital gains tax liabilities. A well used saying is ‘don’t let the tax tail wag the investment dog’ but we always consider fully using tax favoured ISAs before choosing other investment wrappers. Your individual tax position will determine the right investment structure for you.
There is often a lot of appropriate tax planning that can be done within the various pension wrappers, particularly for higher rate tax payers and this can extend throughout retirement.
As we accumulate wealth throughout our lives we often become more concerned with its preservation for future generations. Inheritance tax can take a big bite for the tax man, but there are several ways to mitigate the bill and we will explain them.
The Financial Conduct Authority does not regulate some forms of tax advice.
We are all familiar with this tax and know that the more income we have, the more tax we will pay, but are you sure that your tax code is correct and that you are receiving the allowances to which you are entitled?
The tax regime changes constantly, so it is important for us to keep up to date. HMRC is not infallible so we each need to be aware of our own tax position.
Our aim is to legitimately minimise the tax that you pay. Once we are confident that your affairs are in order we look at how you might reduce your income tax liability by.
- restructuring your savings and investments, or altering the way that investments are held within a couple or a family.
- suggesting ways to reduce the amount of national insurance that you pay, as this is just another form of tax.
- moving you from the higher rate tax band to the basic rate band, using pension arrangements more effectively.
- reviewing your remuneration strategies if you run your own business or company.
- reviewing your position each year in line with the Budget.
Tony Conner is a Chartered Accountant and we have a specialist Tax Accountant to call upon.
Capital Gains Tax
Capital Gains Tax is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something that you own that has value. There’s an annual tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill. Sometimes you may have no tax to pay.
Most assets are liable to Capital Gains Tax when you sell or dispose of them. This includes shares, property, business assets and personal possessions – whether they’re in the UK or overseas. But some assets are exempt, such as
- your car
- (in most cases) your main home.
- personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
- stocks and shares you hold in tax efficient investment savings accounts, such as ISAs
- UK government or ‘gilt-edged’ securities eg National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
The annual tax-free allowance for Capital Gains Tax is known as the ‘Annual Exempt Amount’. The Annual Exempt Amount for tax year 2013/14 is
- £10,900 for each individual, personal representative or trustees for disabled people
- £5,450 for other trustees
It’s very important to keep any records associated with acquiring or disposing of assets. You should also retain any records that show your expenses in relation to the asset. These will help you work out the gain or loss and support your tax return or claim. Where tax is due it is payable by the end of the next January following the end of the tax year in which the gain arose. Gifts, inheritance, separation and divorce can all affect the treatment of assets under the capital gains tax regime.
Inheritance Tax is paid on estates worth over certain limits when somebody dies. Most estates fall out of the regime because they are valued below a threshold but as the tax is levied at 40% we need to check our position to protect our families. It’s also sometimes payable on trusts or gifts made during someone’s lifetime.
The tax is payable at 40% on the amount over the ‘nil rate band’ which is £325,000 in 2013/14 for individuals. There’s no tax on estates left to a spouse or civil partner and the nil rate band can be passed on to the survivor, effectively doubling the threshold.
Typically, the executor or personal representative pays the tax using funds from the deceased’s estate. The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax – but this is not common.
You can pass on assets without having to pay IHT using the following exemptions:
UK charity exemption. Any gifts you make to a UK registered charity during your lifetime or in your will are free of tax. If your estate is worth over £325,000 what you die, Inheritance Tax may be due. From 6th April 2012, if you leave 10% of your estate to charity the tax due may be paid at a reduced rate of 36% instead of 40%. This article explains the main rules.
Potentially exempt transfers. If you survive for seven years after making a gift to someone, the gift is generally exempt from IHT no matter what the value.
Annual exemption. You can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount – you can also use your unused allowance from the previous year to increase this to £6,000.
Small gift exemption. You can make small gifts of up to £250 to as many individuals as you like.
Wedding and civil partnership gifts. Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount.
- Parents can each give cash or gifts worth £5,000
- Grandparents and great grandparents can each give cash or gifts worth £2,500
- Anyone else can give cash or gifts worth £1,000
Business, Woodland, Heritage and Farm Relief. If the deceased owned a business, farm, woodland or National Heritage property, some relief from IHT is available.
And finally, one exemption that is often overlooked – gifts out of income. If you make regular gifts and your standard of living is not diminished, then these regular gifts may well be exempt. This is useful – for example grandparents might effectively fund school fees or university costs.