Personal Tax Planning

While “tax evasion” is against the law, “tax avoidance” employs lawful tactics to lower your tax liability.

The analysis of a financial position or plan to ensure that all parts work together to allow you to pay the least amount of taxes feasible is known as tax planning. Tax efficient planning is defined as a strategy that reduces the amount of money you pay in taxes. Individual investors' financial plans should include tax planning as a key component. Success hinges on lowering one's tax liability and increasing one's ability to contribute to retirement programmes.

Every year, the UK tax system becomes increasingly complicated, with a greater emphasis on taxpayers' individual duties. That implies that keeping track of your personal tax situation has grown more time-consuming and challenging, with the potential of non-compliance increasing.

In practise, personal tax planning is an important element of the function of the modern accountant. Most clients will be looking for guidance on how to structure their personal or commercial affairs in a way that is tax effective and compliant with legal and regulatory obligations.  

Income Tax Planning- Income Tax is a tax you pay on your income. HM Revenue & Customs, or HMRC, collects the tax, which is the government's primary source of revenue.  In the United Kingdom, the basic rate is 20 percent of an individual’s taxable income

 Income tax can be decreased by maximising use of personal allowances and taking advantage of 0% rate bands on savings and profits.

Furthermore, increasing pension contributions reduces income tax. Using tax-free investments such as ISAs and Premium Bonds can also help with income tax planning.

Families - Spouses, civil partners, and children are all considered independent taxpayers, with their own personal allowances, tax rate bands, and annual exemptions. Spouses and civil partners should maximise the utilisation of personal allowances, the basic rate band, the savings nil rate band, and the dividend nil rate band to decrease income tax. When spouses or civil partners jointly hold an asset, any income derived from the asset is divided equally for income tax purposes unless a formal election is made to indicate the fact that the asset is not owned equally.

Furthermore, shifting income to children lowers the overall tax burden. Parents should transfer assets to their unmarried children under the age of 18.

Capital gain tax – Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) an ‘asset’ that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive (gov.uk)

 If the amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above the basic tax rate (gov.uk).

If you’re a higher or additional rate taxpayer you’ll pay:

·       28% on your gains from residential property

·       20% on your gains from other chargeable assets.

Tax planning helps to reduce capital gain tax  and some of the Capital gain tax planning ideas are :

·      Fully utilising Annual Exempt amount.

·      Delay disposal to next tax year

·      Transfer assets between spouses or civil partners to enable use of combined allowances.

·      Using basic rate band

·      Utilising capital losses efficiently – current year and brought forward.

·      Consider splitting realisation of gains over two tax years.

·      EIS reinvestment relief etc .

Consider Cheylesmore Chartered Accountants to get professional support who pays income tax outside PAYE – high-earners, the self-employed or anyone with additional sources of income.