General Tips For Individuals
Each taxpayer's personal and financial circumstances are unique. The following tips should be born in mind when arranging your tax affairs:
1. Claim in full your personal allowances including (where appropriate) - single person's allowance, age allowances etc., Also claim in full your personal relief's including gift aid payments, charitable covenants and payments into a personal pension scheme.
2. If considering a company car, it may be worth considering a car with a low CO² emissions output as this could create a potentially lower tax liability on the car benefit.
3. Employees not participating in a company pension scheme should consider paying into a personal pension contract, as contributions are deductible from earnings up to the appropriate limit. In addition, it may be possible to carry forward any unused entitlement for up to six years, so that extra premiums can be paid in highly taxed years.
4. Use your capital gains annual exemption (i.e. for the year ended 5 April 2020 capital gains of £12,000 are tax free) by crystallising a capital gain where appropriate. Capital gains tax is payable at the individuals highest marginal rate of tax, choosing when to crystallise a capital gain or loss can result in significant tax savings.
5. Gifts between husband and wife can generate the advantage of an additional annual exemption.
6. Inheritance tax on death can be reduced by means of timely gifts and settlements. There is a £3,000 annual exemption available to cover certain gifts, and the exemption can be increased by an unused amount from the previous year. Outright gifts of up to £250 each may be made to any number of other individuals. There are also exemptions available for marriage gifts.
7. VAT - To improve cash flow consider adopting annual accounting, a retail scheme or cash accounting.
8. Delaying the payment of a bonus or commission into a new tax year will delay the national insurance liability on that bonus for up to one year.
9. For owner-managed company's paying high Director's remuneration gives rise to costly national insurance contributions, it may therefore be beneficial to pay dividends instead.
10. School fees and other costs of educating and maintaining children can be undertaken tax efficiently by grandparents and other relatives, by means of a Trust. The income paid by the trustees will count as the children's income and any tax suffered by the trustees could be reclaimed by capitalising the children's personal allowances.
11. Establish all the allowances and relief's available to you and take full advantage of them.
12. As the date of a transaction could affect when and how much tax is due and payable, plan carefully the date on which a transaction or event takes place. By identifying those actions which will increase the amount of tax that is payable, you may be able to arrange the timing of events, which could result in a reduction in the marginal rate of tax payable.
13. Rental income from letting furnished accommodation in your home could attract Rent-a-Room Relief. Gross annual rents below £7,500 are tax-free.
14. If you are a non-taxpayer (for example a pensioner, child or dependent married woman), get the special form so you can receive your bank and building society interest gross - without tax deduction.
Capital Gains Tax Tips
As capital gains tax is payable at the individuals highest marginal rate of tax, choosing when to crystallise a capital gain or loss could result in a significant tax saving.
Capital losses and annual exemptions can be made use of by 'bed and breakfast' transactions. This would involve for example, the sale of shares following by their subsequent re-purchase on a later date.
Retirement relief may be available and should be claimed where appropriate.
Capital gains tax gift relief may be available on assets such as business property, and has the effect of holding over any gain until the recipient of the gift has disposed of it.
Hold over relief may be available where shares are received in exchange for a business carried on by a partnership or sole trader.
Gifts to charities could attract exemption from capital gains tax.
Time the sale of your main residence carefully as this could reduce potential capital gains tax.
Going to live abroad prior to a disposal crystallising a large capital gain could avoid the resulting capital gains tax that may arise.
Inheritance Tax Tips
Taking out an appropriate life assurance plan may be advisable to cover a potential inheritance tax liability arising on death.
Settlements are very useful for inheritance tax planning and in particular where the beneficiary is not able to manage the funds themselves.
Draw up your Will carefully and keep it under constant review as this could reduce the inheritance tax that may arise. Leaving assets to persons other than the surviving spouse could maximise the nil rate band.
Inheritance tax can be avoided by ceasing to be domiciled in the United Kingdom and moving all assets overseas.
National Insurance Tips
It is advisable to have an adequate contribution record to preserve your entitlement to contributory social security benefits. If necessary, consider paying top-up voluntary class 3 national insurance contributions.
Where a Director receives remuneration from a number of companies within a group, it may be advisable to arrange to pay him from one company, which would then invoice the others for a management charge.
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