insideKENT Magazine Issue 92 - November 2019 | Page 173

BUSINESS Personal Tax Planning Guide: Income Tax by Rick Schofield, Partner at Wilkins Kennedy DID YOU KNOW THAT SIGNIFICANT PERSONAL INCOME TAX SAVINGS CAN BE MADE IF A TACTICAL APPROACH IS ADOPTED EARLY ON IN THE TAX YEAR? Earned income over £150,000 is taxed at 45%. However, there is a tax trap here, as anybody earning between £100,001 and £125,000 will actually be taxed on some of their income at 60%. This is because the tax-free personal allowance - £12,500 - is reduced by £1 for every £2 of net income over £100,000. Keeping taxable income below the critical £100,000 and outside of the £100,000 to £125,000 band will save tax. The table below indicates which tax band your income sits (different rates apply to Scottish taxpayers). Tax Band £0 - £37,500 £37,501 - £150,000 Rate % 20% 40% WAYS TO MINIMISE YOUR PERSONAL INCOME TAX Capital Gains Tax on Disposal of Assets Retain your personal allowance • If you are a director/shareholder of a family company you can plan the level of your remuneration/ dividends and other taxable income to be below £100,000, to retain your personal allowance. 45% If you have investments, look at rearranging them so they generate capital gains rather than income. Gains on investments are taxed at 20% for higher rate taxpayers, but at 28% for gains on residential property and certain carried interest. Reduce taxable income • Give income yielding assets to a lower-earning spouse or civil partner (this could include shares and property assets). • Increase your pension contributions (subject to pension limits). • Donate to charity by gift aid if you are a 40% or 45% taxpayer. • Defer income into future years. • If self-employed, or in receipt of rental income, ensure that you record and claim all tax deductible expenses. In relation to changing the ownership of property assets and shares, tax advice should always be taken in advance to consider stamp duty land tax, capital gains tax, VAT, inheritance tax, and other taxes. Salary sacrifice >£150,000 with salaries around the 40% and 45% tax threshold. Your employer may offer benefits in return for lower take-home pay such as cycle to work schemes and pension contributions. This is beneficial for people Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 Child benefit The tax rules on child benefit are complex. The high- income child benefit charge is a clawback paid at a rate of 1% of the benefit for every £100 of income earned over £50,000, such that when income reaches £60,000 the full benefit is lost. A family of three children where one partner has a salary of £60,000 will be required to repay £2,500 of child benefit. Two partners having a total taxable income of £50k each will not have a clawback. WHAT SHOULD I DO NEXT? Our team of tax experts may come up with ways to help you to mitigate your personal tax liability and keep more of your hard-earned money in your pocket. If you would like to find out more information about this please get in touch: [email protected] [email protected] www.wilkinskennedy.com wilkinskennedy 173