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Utilising all the allowances you are entitled to , is the best way to ensure you only pay your fair share of tax . Tax planning strategies are most effective when actioned in real time and monitored on an ongoing basis for effectiveness and efficiency . So , there ’ s no time like the present to review your personal tax position and that of your family , says tax expert and Richardson Swift director Calvin Healy .
Major changes from April this year that could affect the tax you pay :
• Capital Gains Tax allowance has been halved
• Dividend allowance halved
• 45 % higher rate tax band to be introduced for earnings over £ 125 , 140
• Personal allowance frozen
Making the most of your income
Since April , the point at which you start paying the higher rate of tax has been reduced to £ 125,140 . At this point , you will not only be hit by the loss of any personal allowance – which tapers on income over £ 100,000 - you will also now be paying 45 % of your earnings to HMRC . Indeed , it can be worse than that if your income is between £ 100,000 and £ 125,140 as the “ real ” tax rate in that bracket is 60 %! So , taking steps to reduce taxable income to below these levels is the best way to avoid a hike in your tax bill .
Increasing your pension contributions or gifting to charity might be an effective way to do that . There are also tax-efficient investments that could be contemplated such as Enterprise Investment Scheme or Venture Capital investments which can act as a 30 % tax credit reducing your tax bill for the year .
Alternatively , you could consider transferring an income-generating asset to a spouse with a
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lower income , deferring income to a later tax year , or making Gift Aid payments .
No tax is payable on transfers between married couples or civil partners , unless you are formally separated , in which case specialist advice is required .
You could replace investments that provide taxable income and gains with tax-free investments such as ISAs or investment bonds that allow valuable tax deferment . Speaking to a financial adviser will help you decide what investments work best , based on your specific circumstances .
Changing the distribution of investment capital between spouses / civil partners may help to reduce the tax incurred on income and capital gains . Again , transfers between married couples and civil partners will not incur tax .
Children
Each child is entitled to a personal allowance , so it may be worth taking advice on generating income or Capital Gains on behalf of children as a means of saving tax . Parents who transfer assets with income of over £ 100 , will still be liable to the tax , but this is not the case for grandparents . Also , a parent could use a ‘ bare trust ’ to allow the use of the child ’ s CGT entitlement in some circumstances .
Capital Gains Tax
For most people , the Capital Gains Tax allowance will be cut from £ 12,300 to £ 6,000 in April this year and again to £ 3,000 from April 2024 . Any assets that are sold at a loss can reduce gains for the year or be carried forward and set against future capital gains .
Importantly though , any of the annual exemption not used cannot be carried forward and will be lost . Assets can be transferred between spouses and civil partners tax efficiently prior to being sold to ensure both exemptions are used fully .
Inheritance Tax
Individuals have an annual Inheritance Tax-free gift allowance of £ 3,000 . This means you can give away up to this amount and there will be no tax charged on it should you die .
You can also make gifts out of surplus income tax free and also make further small gifts up to
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£ 250 to an unlimited number of recipients each tax year , free from Inheritance Tax ( IHT ). This only applies if the recipients have not received any part of your £ 3,000 IHT-free gift allowance . In addition , you can give wedding gifts up to £ 5,000 to a child , £ 2,500 to a grandchild and £ 1,000 to anyone else .
So , giving money to children or other family members during your lifetime is a great way of supporting them and avoiding paying more money than necessary to the taxman out of your estate .
It is also useful to think about structuring your overall estate efficiently , not only for IHT but for all other taxes . This is an area that more and more clients are interested in exploring , particularly in times of rising taxes on top of current cost of living increases .
If you want further advice on these key areas , contact Calvin on hello @ richardsonswift . co . uk or by phoning 01225 325580 . Bath-based Richardson Swift specialise in building life-long relationships with clients and their families , getting to know their goals and aspirations , so tax and financial planning needs and be anticipated and prepared for .
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Calvin Healy Director
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