Tax planning opportunities for individuals in the UK

In 2018, retain your wealth is a complicated field of wealth planning and tax planning for Individuals or company with High net worth. It encompasses many diverse streams: finance, insurance, asset protection, law, accounting, family wealth dynamics, philanthropy, psychology, family therapy, business succession and wealth management.

Everyone wants to reduce the tax burden either a company or an Individual is ready for tax planning to save taxes - including the rich. Experts say that the optimal way to minimize taxes is something anyone can do irrespective of net worth. Tax optimization means properly recording all expenses that can be grouped into deductible categories. Simple checks like ensuring you get any tax credits you are eligible to, can save a lot with minimal effort.

Below listed are some strategies for tax planning for Individuals & company that can be leveraged to reduce tax deductions in the UK - some are common, some are less common.

Leverage upon Joint Ownerships

Assets that may lead to capital gain (such as shares or property), should be owned jointly. An important criterion is how much annual income is generated out of these assets, when they are sold and also the volume of potential gain. For example, a buy-to-let home should be bought, if it is held in joint names. This will facilitate in using both spouses CGT allowance. As per experts, this methodology can help to realize huge capital gains before a person needs to pay tax. There is a considerable difference in CGT paid by basic-rate taxpayers and the standard. But certain factors need to be carefully considered. The gain realized while calculating CGT is added to the income earned in same tax year. Combination of these two may push some people into the higher tax bracket and they may have to pay higher tax rate on the gain. People who recognize "lumpy" possessions, like a second home, are in a better place to jointly owning the possession. This way they are able to take advantage of two CGT allowances.

Tax Planning in advance is the key

A number of less known reliefs can allow individuals to reduce future inheritance tax payments. An annual gift exemption of a certain amount is applicable for all. It removes this money from the estate regardless of how long an individual lives. Additionally, grandparents can provide certain amount to each grandchild who is married; also parents can provide a certain amount in addition to above. Taxpayers who are wealthy are eligible to make regular gifts out of earnings. This is also IHT-free. These can also be paid monthly, annually, for example, if it is to pay school fees for someone in need. The concerned donor should write a letter and state that it is their intention to make this a regular gift from their excess earnings. If they are able to maintain their current standard of living, there is no restriction on the amount that can be gifted in this manner.

Remaining informed about Tax Code

Server and system issues apart from hardware issues in HMRCs computers have led innumerable instances of wrongful taxation. This has led to people paying incorrect tax through their tax code. It is always prudent to cross check on one’s tax code even though a person does not fall in the category of taxpayers receiving a letter saying tax has been under or overpaid.

Older tax payers should be aware of legitimate appropriate higher personal allowances.

Shun the “I”

Tax is generally paid on individual earnings and assets. However there are a number of allowances offered to married couples and civil partners. This makes it possible to minimize the total amount of tax to be paid as a couple if finances are arranged correctly. It works in cases where one partner falls under a lower tax bracket. It is recommended to change income-generating assets, such as investment funds, shares, jointly owned property, bank and building society accounts to the name of the partner paying lower rate of tax. This ensures, less tax is paid on dividends, savings interest and rent. If an unmarried person transfers assets, this could potentially trigger a capital gains tax (CGT) bill.

Tax efficient borrowing

Tax relief is applicable on mortgage interest for buy-to-let properties. An individual who has a buy-to-let property can file for tax rebate on the mortgage interest. It can be wise to increase borrowing on a buy-to-let property. The borrowed money can be used reduce the main mortgage paid on ones residence. Residential houses are not eligible for tax relief.

However, this should be done with proper due diligence. It is recommended to open a business bank account and ensure all rentals and expenditures go in and out of this account. Any profits made on the rental business can be used to reduce mortgage amount. This will create a tax-efficient way of structuring one’s borrowing. It should be noted that the borrowing amount cannot be more than the original value of the property used for letting.

Tax efficient investment can be helpful

Standard Isas is not the only avenue that offers tax breaks. Enterprise investment scheme (EIS) offers even greater opportunity to reduce tax bills. Investors can save large sums in their tax payments by putting money in an EIS. Additionally, investing money in a venture capital trust (VCT) can also offer a great avenue to save taxes. These are primarily meant to encourage investment in smaller entities.

Taxpayers can invest huge sums in certain small entities under the EIS rules. Purchasing shares in an eligible company provides reduction in tax of certain percentage. The shares are free from capital gains tax and inheritance tax.

An individual can invest in widespread range of shares through VCT. This also provides a tax reduction of certain percentage to investors.

However, the risk of incurring losses in the investments always remain.

Giving away your Salary

If a part of salary is parted with, there can be other non-taxable benefits that follow. These may be in the form of reduced National Insurance Bills or even childcare vouchers.

Look for Offshore Opportunities

Residents of Britain can avail of small tax advantages by leveraging popular offshore regions like the Channel Islands, Isle of Man, Luxembourg or Liechtenstein.

Taxpayers in these regions are required to declare their worldwide incomes, in addition to interest paid on overseas bank accounts. At present there are data-sharing agreements prevalent with these regions. Hence, HMRC has access to information on these accounts.

However, few offshore bonds can still be profitable to higher-bracket taxpayers. These are essentially allowing people to defer tax. Most importantly these are complex products and may require expert advice for further clarity.

Never forget the basics

People often miss out on pension and Isa. These can be extremely helpful in maximizing one’s tax savings.

Do not miss on Allowances

Self employed individuals can claim for the additional expenses required in running a business. This may involve heating, lighting, repairs, council tax, property insurance, mortgage interest. These expenditures can be reduced from net profits, thus, facilitating minimizing tax bill.

However, it should be noted that if even a single room which is a part of a larger property, is utilized completely for a business CGT charge may be applicable at the time of selling the property. It is an important point to be kept in mind while making claims.

DNS can be a very helpful tool in tax planning and can act as a trusted tax saving partner for high-net-worth individuals. DNS offers Tax credit services through which it ensures married couples having children and falling in a certain income category are eligible for Working Tax Credit and Child Tax Credit. Married couples who have children and work for more than 30 hours are also eligible for additional credits. DNS tax planning services assist businesses in keeping their income within the threshold to receive tax benefits.

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