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What Are Examples Of Tax Planning UK

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  • Admin
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  • Tax Planning, Property Tax, Tax Opportunities
  • Posted date:
  • 22-06-2022
What Are Examples Of Tax Planning UK

What are examples of tax planning in the UK?  Find out more about tax planning opportunities for your business and how you can benefit from legal tax planning.

Personal tax planning

Personal tax planning is one of the best ways to reduce your tax liability and can have a significant impact on tax paid. This is not like tax avoidance, which is legal but frowned upon, or tax evasion, which is entirely illegal.

There are various opportunities and tax breaks for you to legally reduce your monthly tax bill. Professional tax advice can help you with things like Capital Gains Tax (CGT), Income Tax, Inheritance Tax, National Insurance Contributions and other personal or business taxes UK residents are eligible for.

Earnings Tax Planning

There are two main areas where Income Tax planning can help you save money in the UK tax system. Your employer might offer employee benefits, such as incentive schemes with certain tax advantages.

When your Income Tax is calculated, these advantages and benefits will be taken into account by HM Revenue and Customs. This is especially useful if you have a company car, which can come with significant tax charges.

Another key area your personal tax planning should focus on is the effect on your tax liability when paying pension contributions. Having a final salary occupational pension scheme can be very handy when reducing your tax bill.

Tax advisors can also help self-employed, high-earning employees, company directors or those with other income besides their primary one when filing their self-assessment tax returns.

What Are Examples Of Tax Planning? UK

Savings Tax Planning

It would help to consider your personal savings allowance and capital allowances when attempting to create effective tax planning arrangements, especially if you have significant savings.

Simply using an ISA or transferring some of your earnings to a spouse can reduce the amount you pay for Income Tax, Capital Gains Tax and Tax Savings. Those with large earnings might also consider investing in venture capital trusts or shares that fall into the Enterprise Investment Scheme.

Contributing to your children's pension schemes is another way to reduce your tax liability and support future generations.

    Property Taxes Tax Planning

    If you already own a property, the only taxes you're likely to pay are Council Tax and maybe others. However, the Stamp Duty you pay when first purchasing the property is the biggest hit. 

    Unlike other investments you might have, your primary home is not eligible for Capital Gains Tax if you choose to sell it. Only second homes, investment properties, business premises, land or any other properties you own besides your main home are eligible for Capital Gains Tax. 

    Financial planning for your Income Tax with your properties in mind is essential, given that it can be a complex area with potential risks for further exposure to taxation.

      Tax planning opportunities

      Understandably, not everyone is taking advantage of efficient tax planning throughout the fiscal year, given the time and effort it takes to determine which opportunities are available to you. It can sometimes be inefficient, especially for owners of small businesses.

      This is why most people hire professional accountants or tax advisors to determine their cases.  Here are a few examples of tax planning opportunities you might qualify for. 

      Tax planning opportunities

        Gift Aid payments

        To create the most efficient tax arrangement, the highest income earner in your household should ideally be making Gift Aid payments. These donations work in your favour when calculating your Income Tax with HMRC.

        Once you have declared yourself a UK taxpayer on the donation, keep a record of the amount you paid so it can be filed with your self-assessment tax return. Hopefully, HMRC will see this and give you a higher rate tax relief because of it

        Pension contributions

        Paying pension contributions is the easiest way to improve your tax position. Paying into a pension allows you to claim back a basic rate tax from HMRC, with those paying tax above the basic rate of 20% being given additional tax relief.

        It's also money you are saving for retirement or your children, so it isn't going anywhere, and you'll be saving on your tax payments in the meantime.

        Pensions and charitable giving

        There is a specific earnings bracket in the UK where those within it are charged higher than anyone else.

        While the higher earnings band is set for income between £50,000 and £150,000, with a tax rate of 40%, and those in the additional band with earnings above £150,000 at a rate of 45%, those with a total taxable income between £100,001 and £125,000 are effectively being taxed at 60%, given that you lose your Personal Allowance at this rate.

        However, there are ways to reduce your tax liability in these circumstances. For example, you might give some of your income or assets to a partner earning less than you or defer your income to the next financial year.

        Again, pension contributions and Gift Aid payments are two of the easiest ways to reduce your personal tax bill.

        Tax efficient investments

        Tax efficient investments

        There are also several tax-efficient investments that you can take advantage of when it comes to Income Tax relief. We've already mentioned Venture Capital Trusts (VCTs). These investments don't have Capital Gains Tax applied; they pay out tax-free dividends, and with a yearly maximum of £200,000, which you can invest, you can earn yourself an Income Tax relief of 30% with these investments.

        Another option might be Enterprise Investment Schemes (EIS). You can be eligible for up to 30% tax relief depending on which companies you choose and how much you invest. Additionally, if you hold these investments for more than three years, all the Capital Gains Tax they accrue is exempt.

        You can also further delay your Capital Gains Tax payment by reinvesting whatever your shares have made into the EIS-approved companies to help your tax consequences.

        Inheritance tax (IHT)

        There are also Inheritance Tax opportunities for you to use to help your tax efficiency. The first of these is the £3,000 annual gift which you can make to your children or grandchildren. 

        Alternatively, you can also make as many small gifts of £250 to as many different people as you like throughout the tax year. You can also make regular gifts from your disposable income, but only for specific things, which include contributing to your child's or grandchildren's:

        • Pension schemes
        • ISA subscription
        • University fees
        • Family holidays
        • Accommodation costs

        However, making these small contributions can be very complicated regarding tax implications, so you should always seek professional advice before doing so.

        Individual Savings Accounts (ISAs)

        Individual Savings Accounts (ISAs)

        There are many different ISAs available through banks, cooperatives and building societies. Any income or capital gains you generate through your ISA is tax-free when withdrawn.

        They also offer an opportunity for parents and grandparents to provide their offspring with financial security in the future while helping them with their tax planning.

        Trading and property allowances

        There are two separate tax-free allowances worth up to £1,000 if you are trading or taking an income from a property. For example, if you earn a taxable income from sites such as eBay, Airbnb or Amazon, these tax reliefs help to exempt modest earnings from taxation.

        If you rent a room in your main residence, you can also claim up to £7,500 tax-free when claiming the rent-a-room relief.

        Marriage allowance

        In a situation where a spouse or civil partner pays tax at the basic rate while the other has a personal income below the Personal Allowance, besides any taxable benefits, the partner earning less can give up to 10% of their Personal Allowance to the other.

        This can add up to as much as £252 saved in your tax treatment through the tax year.

        Employment

        You can also claim tax relief on any expenditure incurred while in employment, including capital allowances for working from home, professional subscriptions and travel costs when using your own vehicle.

        Another important thing to do as an employee is to ensure you are on the right tax codes to receive the right allowances and reliefs and that the right amount of tax is being deducted from your wage.


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