Posted on: 11 Mar, 15
This guide looks at tax planning for individuals including available reliefs, allowances and exemptions
No one likes to pay more tax than they have to. However, for many, there is a very ine line between tax avoidance and tax evasion. This is why careful and expert tax planning is at the heart of ensuring that the line is never crossed.
This guide covers the steps we take in order to help clients maximise reliefs, allowances and exemptions. This will help them not only to avoid falling foul of HMRC, but be safe in knowledge that their money is working as eficiently as possible.
This article concentrates on the personal taxation of individuals in the UK. It is divided up into the 4 areas that affect the majority of the UK taxpayers: income tax, capital gains tax, inheritance tax and pensions.
Of our quartet of areas, income tax is the one that changes most frequently. The key areas where we look to gain maximum value include:
For the current tax year, most people’s personal allowance is £10,000, unless you were born before 6 April 1948 or your income is over £100,000.
|Tax rate||Taxable income above your personal allowance|
|Basic rate 20%||£0 to £31,865 Most people start paying basic rate tax on income over £10,000|
|Higher rate 40%||£31,866 to £149,999 Most people start paying higher rate tax on income over £41,865|
|Additional rate 45%||Over £150,000|
As the personal allowance is reduced by £1 for every £2 that adjusted net income exceeds £100,000, the effective tax rate of income between £100,000 and £120,000 is 60%.
If your taxable income is between £10,000 and £13,540 (not including savings interest) you may be able to pay 10% on some of your interest, instead of the usual 20%.
Tax planning for many self-employed clients usually involves trying to understand payments on account and balancing payments.
These 2 phrases cause a great deal of confusion.
Payments on account are advance payments towards your tax bill, including Class 4 national insurance contributions (NICs) you’ll owe for that tax year. They do not include any liability for student loans or capital gains tax.
Although there are exceptions, anyone with a tax bill of more than £1,000 will need to make them.
Each payment is half your previous year’s tax bill. You pay the irst half on 31 January and the second on 31 July.
A balancing payment is the difference between the amount you’ve paid on account and your actual tax bill. This will be due on 31 January after the end of the tax year. If your actual tax bill is lower than you’ve paid on account, you can apply to HMRC for a refund.
You may have to pay capital gains tax (CGT) if you make a profit (or ‘gain’) when you sell or dispose of a personal possession for £6,000 or more.
Possessions you may need to pay tax on include:
You don’t usually need to pay tax on gifts to your husband, wife, civil partner or a charity.
You don’t pay CGT on:
The good news is that you only have to pay CGT on your overall gains above your tax-free allowance (called the annual exempt amount).
|6 April 2013 to 5 April 2014||£10,900|
|6 April 2014 to 5 April 2015||£11,000|
The annual CGT allowance is a vastly under-used exemption.
We can help by:
The £325,000 nil rate band is here to stay until 2017/18, however there are ways to reduce the impact it may have on your estate. These include:
While some people stick their head in the sand and hope for a nice legacy, lottery win or other windfall to ease their twilight years, the reality is that most people will see a decline in their income. Planning advice includes:
As the UK tax code now runs to 17,000 pages at the last count, tax planning is a complex matter that requires a number of skills: intimate and up-to-the-minute knowledge of every relevant tax law, dexterity and sound judgement on which apply to you in your individual circumstances.
And if you are picked at random or for any other reason by HMRC for investigation, the services of a team with excellent communication and negotiating skills to ensure the right outcome.
Copyright © 2013 - Oury Clark.