Minimising your personal tax liability
3rd December 2012
With Self Assessment deadlines rapidly approaching, no one wishes to pay more tax than is necessary. Everyone’s situation is different, and tax rates, allowances and legislation change every year. Good tax planning is an essential component in stopping you paying more than is necessary. Here are some of the key personal tax issues to consider.
Make the most of your personal allowances
Many individuals fail to optimise their tax allowances. If you have a partner, spouse or child who pays a lower rate of tax than you do then consider allowing them to hold some or all of the savings in their name.
From 7 January 2013, there is a new income tax charge where child benefit is being claimed and at least one parent or guardian earns £50,000 or more. The charge equals 1 per cent of the child benefit for each £100 earned over this limit. This means that parents will face a marginal rate of tax above 50 per cent on earnings between £50,000 and £60,000.
There are several tax-free vehicles in which investments can be easily made, including Individual Savings Accounts (ISAs) (the 2012/13 allowance is £11,280 for all adults) and some National Savings products. Tax advantageous investment vehicles include the Self Invested Personal Pension (SIPP), which grants a wide degree of investor choice at the expense of accessibility.
Two other forms of investment, the Enterprise Investment Scheme (EIS) and the Venture Capital Trusts (VCTs), offer substantial tax relief for those who are happy to invest with a higher element of risk. Also since April 2012, there is a new Seed Enterprise Investment Scheme (SEIS) for those willing to invest in very young companies, but obviously the risks are higher.
For a full review of your available options and how they might affect your tax liability, please contact us.
Dividends and equity
Dividends from most companies including foreign dividends attract a non-repayable tax credit equal to one ninth of the dividend. If you own your own company, it still makes sense to take your remuneration in dividends rather than salary if profits allow.
If you are planning to sell shares it may be possible to make a partial sale straddling the tax year, thereby utilising capital gains tax annual allowances each year, provided these allowances have not otherwise been used. If you make losses on your shares, it is also possible to carry this loss forward to offset against future capital gains.
Capital gains tax
Tax-free gains of up to £10,600 are available for each individual and this exemption can be valuable when seeking to minimise capital gains tax.
With increases in the rates of tax and reduced tax relief on pension contributions, we can help you plan. Do please contact us for advice.