Tax planning is an inevitable facet of life for both medium and high earning individuals.
The fiscal affairs you face is bound to be shaped by your life events and goals. So, it is mandatory to have a tax adviser by your side who can make the right tax arrangements for you and your family.
The Smooth Feathers Accountants personal tax team aids business and property holders, valuable partners and executives, mobile individuals and their families.
We’ll help you to realign your finances properly, and keep your tax affairs in line.
There are multitude of options to lower your exposure to an array of taxes. All of it can be accomplished with the right foresight and expert professional advice.
Effective planning begins with a strong desire to cut on potential liability by taking relative steps. This can be done by making sure, proper tax allowances are utilised within the asked timelines.
Our advice is custom tailored to individual situations – why not book a free consultation to explore how we might help you plan your taxes?
Let us know your situation in depth. We’ll take a 360° outlook that includes not just your finances, business and property but also your personal circumstances, ambitions, and life goals.
This helps us see the picture inside the outer layer. We’ll examine your tax status in a holistic way and then design a perfect solution that meets your needs & lower your tax liability.
Working with a Tax Planning Accountant
at Smooth Feathers Accountants
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Personal Tax Planning
Personal tax is a vast subject. The taxpayers in the UK has presently over 1,000 tax reliefs available to them, and these rules are constantly being updated. Here we are with our expertise in tax planning and experience in core personal service. We act as trusted advisors to our clients for their entire lives and careers.
Our personal tax planning services include:
Personal allowances and reliefs
Your Personal Allowance is the volume of income you need not have to pay tax on. The standard personal Allowance for 2019-20 is £12,500. The tax rates from 20% to 45% is then charged for non-savings income above the Personal Allowance amount.
A higher margin of tax is payable for money between £100,000 and £124,000 when the Personal Allowance is withdrawn. This gives a marginal rate of 60% for non-savings and savings income.
You can transfer £1,250 of your Personal Grant to your spouse or civil partner if neither of you is a higher rate taxpayer. Your Personal Grant can be even more if you claim Blind person’s Grant.
It allows the basic rate tax payer to receive up to £1,000 of interest from savings tax-free. While, a higher rate taxpayer cab avail up to £500 interest from savings without any tax due. Please see there is no relief for an extra rate (45%) taxpayer.
Personal Allowance Planning
Things to consider…
- If everyone is not taking advantage of their personal allowance, them consider the transferable marriage allowance.
- Is there any option left to utilise any unused grants this tax year?
- What are the options to take benefit of marginal tax rates and lower the slice taxable at a higher rate?
- Would it be possible to consider tax-free alternatives to a bonus or salary increase?
- Can you seek benefit of the rent a room relief?
Capital gains tax
It is the tax on the profit that you sell with an appreciated value. It applies on the gain you make and not on the amount you receive. Usually, you do not pay gifts to your husband, wife, or civil partner or charity for that matter.
Each person can avail a tax-free gain up to £12,000 or up to £6,000 for trusts. Marries couples and civil partners can therefore get a tax exemption of up to £12,000. Gains are only taxed at a rate that is income-dependent.
The tax rate for gains falls under the spare basic rate band grant of 10% where taxable income is less than £33,501 or £31,501 in Scotland. It then rises to 20% and the standard rate for a trust get up to 20%.
The capital gains tax goes higher in case of residential property and carried interest which are taxed at a rate of 18% and 28%. Trustees pay a 28% tax for the similar disposal of such assets.
Business owners get a lower rate of 10% for qualifying gains under the entrepreneur’s relief. While the maximum reduction tax is £1 million.
CGT Planning
Things to consider…
- Have you used your annual exemption of £12,000?
- What tax can be saved by maximising the advantage of family member tax-free exemptions?
- Should an asset that is going to be sold in the future be transferred into joint names?
- If a gain is going to be realised, are there other assets which are standing at a capital loss that can be used to reduce your gains?
- If tax is due, are there ways of deferring or rolling over the gain?
- If you have substantial assets outside of an ISA could you arrange them to generate a tax-free income?
- Have you reviewed your buy-to-let portfolio to explore how you can reduce your tax liability from property income?
- Would it be beneficial to incorporate buy-to-let properties into a company?
- If you have two properties you have used as a home, have you considered if your main residence election is on the property with the largest gain?
Inheritance tax
Generally, inheritance tax (IHT) is due on death at a rate of 40% if the inheritance threshold of £325,000 is exceeded.
Since 6 April 2017 there has been a £100,000 residence nil-rate band available, subject to certain conditions. These include leaving the home, or share of one to direct descendants such as children or grandchildren. This residence band will rise annually until April 2020 when it reaches £175,000. This means the individual available nil-rate band reaches a maximum of £500,000 or £1 million for married couples or civil partners.
The percentage of any unused nil-rate band from the first death may be transferred to the surviving spouse, allowing up to double the nil-rate band applicable at the date of the second death.
Gifts or transfers made within seven years of death are also added back into the estate and are liable to IHT, but may be subject to some exemptions as well as a tapered reduction for tax on transfers between years three and seven.
Inheritance Tax Planning
Things to consider…
- Do you have an up-to-date will that reflects your wishes and are you happy with the choice of executors?
- Are you taking advantage of exemptions such as the annual £3,000 exemption, gifts out of income, and gifts on marriage or civil partnership?
- Should you consider using a discounted gift trust which allows the gifting of a lump sum into a trust while retaining income for life?
- Do you have surplus assets that you can give away and reduce the value of your estate that is chargeable to IHT?
- Should you consider altering the spread of your investment portfolio into more IHT-efficient products?
Pension contributions
There are limits on how much you can invest in a pension scheme before a tax charge is payable. You need to contribute your pension being a UK individual to attempt for a tax relief.
Tax relief for pension grants is as per the net earnings and the annual allowance.
The annual grant is presently £40,000 a year for income slab of less than £150,000. While it allows an annual grant of minimum £10,000 per year for income slab of £210,000 or more.
Extra set of rule applies to individuals with ‘threshold income’ above £110,000. So, taking a pension advice is important. You can carry forward any used grants provided you had a pension fund during the last 3 years.
A separate lifetime allowance has a limit of £1 million. However, when seeking for benefits more than this value is liable to a tax charge.
Pension Planning
Points to consider…
- If you are above 55, you can ask for pension drawdown even if you are still working. However, these benefit schemes are liable to restrictions and added costs if taken early.
- When are you planning to retire and what’s your real income?
- Should you increase your pension grants?
- Have you reviewed both employee and employee pension grants if you have exceeded the annual allowance?
- Did you consider the potential inheritance tax benefits of maximising your pension fund?
ISAs
Individuals who are 18 or over can invest up to £20,000 in an ISA. Growth, income and withdrawals from an ISA are free of income and capital gains tax, but the value of an ISA will form part of your estate for inheritance tax purposes.
A Junior ISA of up to £4,368 is available for those who are 17 or under.
ISAs are normally readily accessible (subject to scheme rules).
It is also possible, as part of the £20,000 ISA allowance, to invest £4,000 each year into a Lifetime ISA which receives an annual government bonus of up to 25% of your savings. The funds can be used on the purchase of a first home, or used for retirement. There are further scheme rules and early withdrawal penalties. You must be over 18 but under 40 to open a Lifetime ISA.
Help to Buy ISAs allow individuals over the age of 16 to save up to £200 a month towards their first home. Buyers can also deposit a lump sum of up to £1,000 when they set up their account. The money will earn interest and will also qualify for a 25% bonus (up to £3,000) from the government, provided the funds are used to buy a home.
ISA Planning
Things to consider…
- If you don’t already have an ISA, should you start one this tax year?
- Should you use the maximum tax-free investment allowance?
Tax Credits
Individuals on low incomes may be eligible to claim tax credits or the universal credit (existing claimants will move to universal credit by the end of March 2022).
The calculations for these benefits involve determining 3 figures: your maximum benefit, your net income and your allowance.
The maximum benefit is the amount you would receive if you had no income at all. As some income is disregarded, it is possible that someone could receive the maximum benefit even if they had a small income.
Net income is usually earnings after tax, national insurance and pension contributions. A notional income may be added if you have capital above a certain threshold.
The allowances are the maximum amount of income you may earn and still receive the maximum benefit. If your income is above this figure, a percentage of the excess is deducted from the maximum benefit.
Tax Credit Planning
Things to consider…
- Check to see if you qualify for these benefits as they can sometimes be payable for people with fairly high incomes.
- As capital can be treated as income that reduces benefit, it may be sensible to give away funds or to spend them upgrading your property (as property value is not regarded as capital).
- However, there are rules to counter blatant examples of capital reduction.
Non-UK domicile taxation
From 6 April 2017 non-domiciled individuals are deemed UK domiciled for tax purposes if they have been a UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin.
Inheritance tax is charged on UK residential property when this is held indirectly by a non-domiciled individual through an offshore structure. This, for example, might be where the property is held in a trust or a company.