It is still allowed to make plans to keep tax bill low
Published at 14:05, Friday, 13 July 2012
Given recent media coverage, you could be mistaken for thinking that you are not allowed to undertake any tax planning whatsoever.
Cases reported in the press recently have been at the more aggressive end of the tax planning spectrum and so HM Revenue & Customs (HMRC) has been taking a firmer stance with this type of tax planning.
However, it still remains your right to arrange your financial affairs in such a way as to reduce your overall tax liability, although you would be forgiven for believing that this was no longer the case. In fact, HMRC encourages sensible tax planning by providing each individual with certain yearly allowances and tax-free income. This can often be missed, so below is a recap of the kind of planning that everyone should be undertaking:
Cash ISAs – UK individuals can invest up to £5,640 cash in their ISA each year. The interest received in their ISA will not be subject to income tax, which could save up to 50 per cent tax per annum.
Utilise spouse’s basic rate tax band – It is not uncommon for one spouse or civil partner to be paying higher rates of tax, this could be up to 50 per cent, while the other’s income remains well below the basic rate tax band. In this common situation the spouse suffering tax at the higher rate should consider transferring some of their income producing assets, for example shares, to the other in order to utilise their basic rate tax band and there is no capital gains tax on these transfers.
Capital gains tax annual exemption – Every taxpayer has a capital gains tax annual exemption, an amount of assets they can dispose of without incurring tax, which currently stands at £10,600. This amount cannot be carried forward into another tax year. Therefore, if you do not make use of this in a tax year, it is effectively lost. Individuals who are thinking of selling any assets should consider selling them in separate tax years to make use of their capital gains tax annual exemption. The potential tax savings for simply structuring a capital disposal tax efficiently could be almost £3,000. As mentioned above, married couples and civil partners could consider either transferring assets to their spouse or holding the assets jointly prior to disposal in order to utilise both the lower rate of tax and their spouse’s annual exemption.
Inheritance tax – inheritance tax bites at 40 per cent on individual estates over £325,000 and the Government has confirmed that this band will remain the same until April 2015. However, so often people suffer this tax when, with some planning, their liability could have been reduced significantly.
Sensible tax planning will always be worthwhile because it uses the allowances available to each taxpayer although often to get the best result from this type of planning it needs to integrate into your longer term plan so that it meets all of your objectives and this is where professional advice can really add value.
For more information or tax planning advice email firstname.lastname@example.org call freephone 0800 195 2161.
Published by http://www.cumberlandnews.co.uk