Tax Planning for Individuals
The main areas of tax planning for individuals falls into one of
- Income Tax Planning
- Capital Gains Tax Planning
- Savings Tax Planning (Including dividend tax and tax on interest)
- Inheritance Tax Planning
We will examine the first 3 of these below.
Income Tax Planning
Aside from ensuring that you make sure that you claim your allowances for your allowable expenses via your tax return there are a fair few other planning methods you can be using, some of which are very effective.
Pensions - Contributing to a pension scheme allows you to achieve tax relief. This reduces the amount of income tax you pay (provided you pay any) whilst simultaneously putting money away until you are over the age of 55. You can then use this income to provide you with a retirement income and a tax-free lump sum.
Taking Profits - Sometimes we tell clients to reduce or delay the amount of income they take from their business, if this is plausible, to ensure that maturing investments do not breach any usable tax allowances, which in turn reduces their income tax bill.
Enterprise Investment Schemes (EIS's) - At the higher end of the risk spectrum are EIS's, although some providers have started trying to provide lower risk versions in recent years. The tax advantages of these can be huge, especially for high-earners. With sizable income tax rebates for investing and potential repayments of already paid capital gains tax there can be some very good reasons to use these schemes. Add to this the potential to have the assets excluded from your taxable estate for Inheritance Tax purposes then you could be on to a winner.
Venture Capital Trusts (VCT's) - Also at the higher end of the risk spectrum are VCT's. These have similar advantages to those of EIS's, with sizable income tax rebates for investing and potential repayments of already paid capital gains tax. These assets however require a longer time frame than EIS's and do not benefit from inheritance tax relief.
Capital Gains Tax Planning
Capital Gains Tax (CGT) - is payable only when you realise a gain on an asset which is applicable to CGT. Further to this you have a personal allowance each year which allows you to realise a gain free of capital gains tax up-to this limit. Anything over the limit will have capital gains tax charged against it. This limit varies from year-to-year.
We help with the planning to reduce or negate the capital gains tax payable where possible by using various techniques.
Savings Tax Planning
There are two main types of savings tax:
Dividend Tax - Usually the tax paid on the distribution of dividends from investment funds is paid net of the basic rate of dividend tax which is non-reclaimable. It is non-reclaimable even within an ISA and a Pension scheme, which means, contrary to popular belief, that you do actually pay some tax on the returns in these tax wrappers. However if you are a higher rate tax payer then these wrappers help shield you from the higher rate.
Tax on Interest - Interest earned on cash savings, government gilts and corporate bonds is taxed at the savings tax rates. However by using certain tax wrappers we can avoid paying these types of tax. ISA's can be highly advantageous, as can Pensions and Investment bonds.
By structuring your finances today and then adjusting them regularly as your life changes you can effectively plan to pay very low levels of tax in most circumstances. Most of the time the tax regime is so difficult to understand that clients are unaware that they are paying tax in certain areas and have never really devised a plan to combat their overall tax-bill.
Whilst your accountant might look retrospectively, we do the opposite, we look forward, we ask plenty of questions to work out where you want to get to, then we recommend the structure of your assets in order for you to get there as quickly as possible. We don't just look at one area, we look at them all, however complex.
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