10 Personal Tax Planning Tips

If there is one common theme to the existence of mankind throughout the world it is that no one enjoys the experience of paying tax. Unfortunately it is part of our lives and each successive government believes it is their purpose and privilege to make our tax laws even more complicated. It is for this reason that it is important to identify any tax reliefs and other benefits which are available to reduce the amount of tax you have to pay.

Here are 10 tips to help you reduce the amount of money you would otherwise have to pay to the taxman:

1. Check whether you are due to a repayment. If you think you may be due to a repayment, ask the Inland Revenue for a tax return.
2. If you are looking at investments and you are a higher rate taxpayer, consider choosing growth over income. The reason is that no tax is payable on the growth of the investment until it is sold. The profit will then be treated as a capital gain and you will be able to set your annual capital gains tax exemption against the gain in order to reduce the amount of tax you have to pay. Taper relief is also available at up to 40% for non-business assets depending on how long the investment has been held.
3. Transferring income-producing assets between spouses to maximise lower rate bands. Where your spouse has not utilised his/her lower rate income tax bands and you are suffering the top rate of 40% then it is worth considering transferring income-producing assets to your spouse to reduce the amount of tax you have to pay.
4. Investing in tax-exempt products such as ISA's to use both spouses' annual contribution allowances. Other tax-free investments are limited but include certain National Savings certificates up to a specified value and which require the funds to be locked away for two+ years.
5. Maximising pension relief. From 6 April 2006 the pension contribution regime has been simplified and contributions are subject to an annual limit which is the lower of the tax payer's income and the specified annual limit. There is also a lifetime to take into account. Tax payers can continue to contribute up to £3,600 per annum in pension contributions without having any taxable income.
6. Trusts for tax savings. Following the changes in the 2006 Finance Act the traditional Accumulation & Maintenance Settlement will become obsolete however discretionary trusts and other types of settlements will continue to have a role in estate planning in specific circumstances. Professional advice is essential when considering using trusts.
7. Sheltering capital gains. If you have taxable capital gains you can defer paying the tax if you rollover the gain by reinvesting it in authorised Venture Capital Trusts or Enterprise Investment Schemes. However, such investments only allow such favourable tax treatment because they carry high investment risk. We would not recommend this step for the more cautious investor.
8. Worthless shares. If you own shares that have fallen so low in value that they have been declared by the Inland Revenue to be of "negligible value", you can claim a capital loss to set against capital gains on other assets.
9. Write life assurance policies in trust. If you write any life assurance policies in trust for your children the proceeds from the policy will not form part of your estate when you die. As a result there may be a saving of Inheritance Tax, depending upon when your death occurs.
10. Leaving assets to a partner. If you are not married to your partner anything you leave to them when you die will be taxed at 40% once the "nil rate band" has been used up. If you marry your partner, any assets you leave to your spouse when you die will be exempt from Inheritance Tax.

As professional accountants we have experience in advising on tax planning issues for the private client. If you would like any help in planning your financial affairs in order to minimise your tax liabilities then please contact us.