Income Tax Planning
There are a number of ways of reducing the amount of income tax that you have to pay, some of which are:
- Giving funds to your spouse – personal income over £150,000 is taxed at 45 per cent. Personal allowances are, however, reduced by £1 for every £2 of net income over £100,000, this means that for income between £100,001 and £120,000 the effective tax rate is 60 per cent. Individuals with incomes near these thresholds can reduce their tax liabilities by reducing their taxable income below £100,000 or £150,000. Having said that, if you are a higher rate taxpayer, and your spouse is not, it will still be beneficial to transfer cash or other income generating assets in order to benefit from a lower tax rate.
- Exchanging a salary for benefits – these include sacrificing a cash payment for approved share options, benefits in kind or pension contributions in lieu of salary and taking advantage of schemes for workplace nurseries, cycling to work and pensions. These may be available through your employer.
- Rearranging investments to produce a tax-free return – investments can be rearranged so that they produce either a tax-free return or a return of capital (gains are taxed at a maximum of 28 per cent) rather than an income taxable at a maximum of 45 or even 60 per cent.
- Releasing equity on buy-to-let properties – you may be able to increase your borrowing against a rental property and continue to claim the loan interest in full as a deduction from the letting profit, giving effective tax relief at your top rate of tax. The cash realised can be used to pay a domestic mortgage, which gives no tax relief, or used for other things. Note that you will need to check on comparative interest rates to ensure savings are generated.
- Claiming wear-and-tear allowances on let properties – if you rent out a property with sufficient furnishings that the tenant can move in with just a suitcase, but still live comfortably, you can claim an allowance of 10 per cent of the net rent. This is a relief on so-called furnished property, not available on unfurnished properties.
- Claiming tax breaks on furnished holiday lettings (FHL) – you will need to ensure that the rental property qualifies as an FHL. If it does, the tax benefits are worth having.
- Switching company cars to save tax.
Each of these can potentially save you hundreds or thousands in tax each year when structured correctly. There are many, many more ideas and tax breaks – correct income tax planning can also, for example, help you to retain child benefit, which is clawed back at one per cent for every £100 of income over £50k.
What makes us different?
- We don’t just focus on income tax planning – as experienced accountants and tax advisors, we are able to look at the bigger picture of your life, business affairs and family to find a number of ways to minimise your tax across the board.
- We offer non-aggressive solutions – there are many ways of minimising tax, and possibly national insurance, by undertaking non-aggressive ways of maximising the tax allowances that everyone gets, or even moving funds offshore. Our income tax planning service is non-aggressive and there is no stigma or negative association attached to it.
Common Client Objectives
Our clients often have a consistent set of objectives including:
- Being efficient – sometimes people with the most well-run businesses or lives don’t have the most efficient tax planning. In many cases a phone call to us will determine whether we can save you tax. This is very appealing to our clients as it makes them feel that life doesn’t need to be any harder than it already is.
- Peace of mind – to know that someone has objectively looked at your finances, your wider personal, family and business situation, and that you have advice that makes sense, ensures that you don’t feel that you’re wasting money and you can relax and guarantee you can pay bills and have money to spend on what you enjoy.
- Planning ahead – many parents realise that by planning ahead they can save significant tax and that this can help them to afford, for example, independent schooling for their children.
- Not wanting to spend more than you should – many of our clients find that they are not planning for tax as effectively as they should and are therefore paying significantly more tax each year than they should. Being aware of this means that people are more able to put more of their own money to better use.
What to do next
The next step is to arrange for a free initial conversation with one of our tax planning specialists.
In that conversation, we would gather all the necessary details regarding your affairs, we would then prepare a report outlining how we could help to re-structure them and the tax and national insurance savings we would expect to achieve. It is then down to you to decide if you want to take things further.
If you would like a free initial conversation, please give us a call on 01664 564 581 or fill in the contact enquiry form.