When it comes to tax planning, it is crucial to employ effective strategies that will save time and interest. To capitalise on tax planning, individuals should consider seeking the benefits of tax-law provisions, tax deductions, and tax credits. Unsure of which plans to consider? Here are some tax planning ideas to provide an appropriate foundation to ensure you are making the best use out of available reliefs and allowances.
Tax credits are subtracted from an individual’s tax liability, rather than from taxable income. Because credits reduce taxes dollar for dollar, they provide similar value for individuals who can claim full values. For self-employed individuals, it is recommended they consider protective claim for their tax credits. Claims can be backdated by a month and need to be renewed annually.
It is recommended married couples transfer income generating assets to their spouse to utilise tax free personal allowances. This proves useful when one individual pays a higher rate/additional rate income tax where the other is a basic rate taxpayer.
For married couples that own a jointly held property, they can elect on ‘Form 17’. This provides the couple the opportunity to be assessed on the arising income according to their actual beneficial interest, rather than having income taxed upon them equally.
Electing Main Residences
For taxpayers holding two or more properties, they can opt to elect which property should be treated as the primary residence. By choosing the property, individuals can alleviate potential future capital gains tax charge.
Personal Pension Contributions
Taxpayers with statutory incomes exceeding £100,000 can preserve their personal allowance by considering personal pension contributions. Individuals can also opt for tax efficient company benefits by making salary sacrifices
Gift Aid Donations
Gift Aid proves a beneficial tax relief. The relief is on amounts donated to qualifying charities at the marginal rate of tax for the donor. When tax rates are high, donors who contribute to holding accounts or charitable trusts can see their tax relief maximized.
For taxpayers looking to reduce the value of assets younger generations will inherit, inheritance tax (IHT) proves a valuable option. With early actions and plans for distributing assets, inheritance tax can be mitigated. Inheritance tax planning should be considered especially for retired individuals who have an excess of wealth in accordance with the nil rate band (or double for retired couples).
There is a wide variety of tax reliefs and planning strategies for individuals looking to utilise available reliefs and allowances to save time and interest. While not all plans are suitable for all individuals, it is important taxpayers familiarise themselves with the possibilities to make informed decisions regarding the tax plans that can best suit their families, needs, and income.