Tax Planning

Would you like to pay less tax?

The goal of tax planning is to arrange your financial affairs so as to legitimately 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 actions, but it shouldn’t drive the overall strategy, which is to meet your own future objectives in life. A well used saying is ‘don’t let the tax tail wag the dog’.

As part of a comprehensive financial review we will check your tax position. We also have a specialist Tax Accountant to call upon with whom many of our clients already work with.

An important starting point is to be aware of your allowances and opportunities to save tax, so that we can organise your affairs in the most tax efficient way. For example, we are all familiar with income tax, but National Insurance is simply a form of tax that can sometimes be reduced.

When placing savings and investments we aim to minimise both income and capital gains tax liabilities. For example, we always consider fully using tax favoured ISAs before choosing other investment wrappers. If and when appropriate, we can introduce more sophisticated tax planning and we will ensure that you fully understand what we plan to do – and why! Your individual tax position will always determine the right investment structure for you.

As we accumulate wealth throughout our lives we typically become more concerned with its preservation for our children and grandchildren. Inheritance tax can take a big bite for the tax man, but there are several ways to mitigate this bill and we can explain them.

There is often a lot of appropriate tax planning that can be done within various pension wrappers, particularly for higher rate tax payers and this can now extend throughout retirement, potentially benefiting the next generation.

Income Tax

We are all familiar with this tax and know that the more taxable income that 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 income tax regime changes constantly, so it is important for us to keep up to date. HMRC is not infallible. The proposed universal online personal tax accounts will firmly put the onus on us all to keep our tax affairs in order.

We will look at how you might reduce your income tax liability by:-

    • restructuring your savings and investments, or altering the way that investments are held between a couple or within a family. We will also be looking at lowering the charges you pay.
    • suggesting ways to reduce the amount of national insurance that you pay, as this is just another form of tax.
    • Taking action to move you from the higher rate tax bands to the basic rate band if possible by 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 or interim government statements.

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.

Most assets are liable to Capital Gains Tax when you sell or dispose of them. This includes shares, property, business assets (subject to some reliefs) and personal possessions – whether they’re in the UK or overseas. But some assets are exempt, such as

    • (in most cases) your main home.
    • personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques.
    • your car.
    • stocks and shares you hold in tax efficient investment savings accounts, such as ISAs and pensions.
    • 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 2024/25 is:

    • £3,000 for each individual, personal representative or trustees for disabled people
    • £1,500 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. This is a topic on which guidance should be sought.

Inheritance Tax

Inheritance Tax (IHT) is paid on estates worth over certain limits when somebody dies. Most estates fall out of the regime because they are valued below the threshold but as the tax is levied at 40% we all need to check our position to protect our families. It’s a tax also sometimes payable on trusts, or gifts made during someone’s lifetime.

The tax is 40% on the amount over the ‘nil rate band’ which is £325,000 in 2024/25 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. There is also a “Residence nil rate band” applicable where the main home is left to direct descendants. This is up to £175,000 and also inheritable by spouses or civil partners.

Typically, the executor or personal representative pays the tax using funds from the deceased’s estate. This may not be possible as assets cannot be released until probate is granted and probate cannot be granted until IHT is paid. Advice may help avoid this “catch 22” scenario. 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 when you die, Inheritance Tax may be due. Under current rules, if you leave 10% of your estate to charity the tax due on your taxable estate may be paid at a reduced rate of 36% instead of 40%, although this is a complex rule to be used with care.

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 tax 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 in a tax year.

Wedding and civil partnership gifts – Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount, as follows:

    • 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 – this can be in any pattern – 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 for grandchildren.

Please note that The Financial Conduct Authority does not regulate Tax Planning. The above examples relate to UK tax resident and UK domiciled individuals. Personal advice should always be sought.