Most of us have heard or read about NISA, pension contribution tax relief, capital gains and personal annual allowance, but do we all use them each year? I doubt it – many people don’t maximise opportunities for tax relief. There are too many things to worry about – work, shuttling children back and forth to various activities, DIY. There are often much more pressing matters that stand in the way of properly analysing your tax accountability. In fact, most people do what they can to avoid thinking about tax until January, before the annual race to get your tax return in.
But if you knew what to look out for, there are some really good opportunities to reduce your tax liability.
Here are some top tips:
- Tax allowance for spouses: in addition to these commonly known allowances, couples now are able to register to shift unused tax allowance between spouses, which could help them save up to £220 a year. If you claim it now, it can be back-dated so you can claim another £212 for 15/16 tax year.
- Use your tax relief allowance: either to reduce your tax bill, or use your allowances to help loved ones who are just over thresholds such as the Child Benefit Earning threshold or the 20% tax rate threshold. With careful planning, a timely gift to them of a sum of money, which they place in their pension, allows them to use up their pension allowance while reducing their taxable earnings by that same amount. This gift can also help reduce your estate for Inheritance Tax (IHT) purposes if that is something you are interested in doing or help you use your annual gift allowance.
- Older and wiser: as you get older, there are certain age-related allowances that can reduce your tax. Some are amounts of income that you don’t have to pay tax on, others are amounts that reduce your tax bill. Try to discover some of these this tax year like personal savings allowance and new dividend tax allowance.
- Capital Gains Tax (CGT): were you aware that in the last budget the rates of capital gains tax – were cut? The CGT rate for basic rate taxpayers will fall from 20 per cent to 10 per cent, while the rate for higher rate taxpayers will fall from 28 per cent to 18 per cent. However, the rates of CGT payable on residential property sales will remain unchanged at 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers.
As the saying goes nothing is as certain as death and taxes. But with some careful planning it’s possible to see some real opportunities to maximise tax relief and drive down your tax liability. Thinking about tax might not be everyone’s cup of tea – but by putting it to the bottom of your do-list, you really could be missing a trick.
Tax treatment set out above is based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance, it does not constitute advice. Tax benefits depend upon the investor’s individual circumstances; levels and bases of taxation may be subject to change in the future.
Canaccord Genuity Wealth Management
Furqan is a Wealth Adviser for Canaccord Genuity Wealth Management, providing bespoke wealth planning and portfolio management to high net worth individuals. He is a member of the Chartered Insurance Institute and the Personal Finance Society
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