Tax is a large part of financial planning. Utilising tax allowances means you don’t pay more tax than you need to and goes a long way to helping you achieve your financial goals.
UK tax can be confusing at times. Some of the main tax points are covered below:
Buy To Let
There’s a balancing act between paying Capital Gains Tax now or leaving an Inheritance Tax liability when they die. It’s better to pay CGT at 18% or 28% than IHT at 40% down the line though individual circumstances are relevant.
Income Tax
There’s no official Income Tax rate of 60%. However, a quirk in the tax system means that once your earnings exceed £100,000 a year, you start to lose your tax-free personal allowance at a rate of £1 for every £2 you earn over that amount. This amounts to an effective tax rate of 60% on earnings between £100,000 and £125,140, beyond which you’ll stop getting any benefit from the personal allowance This is because the tapering of the personal allowance will cost you £20 in every £100, plus the £40 Income Tax you’re already paying.
Inheritance Tax
There are lots of ways you can reduce an IHT liability, for example, by gifting, with trusts or insuring your liability with a whole-of-life insurance policy. What works best for you will depend on your circumstances. A plan that mitigates your loved ones’ future tax bill, without leaving you short during your lifetime is good to have, whilst controlling how and when your wealth is distributed.
Dividends
It’s important that you make sure your personal remuneration is tax efficient. It will be a combination of salary and dividends, with the latter becoming more attractive following the reversal of the Dividend Tax rise. Maximising pension contributions can help you mitigate Corporation Tax. If you’re married, there’s tax benefits from your spouse also.
Tax Allowances
The UK tax system has many tax-free allowances that can limit the amount of tax you pay on everything from your income to your capital gains and the money you leave behind when you die. Tax wrappers such as ISAs and pensions can be used to shelter your savings from tax.
To structure your income and investments in the right way to legally reduce the amount of tax you pay talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.