By Daniel Hunter
As the new tax year approaches, now is the ideal time to review your tax affairs and take advantage of simple planning opportunities which could reduce your tax liability in the coming years.
1. Tax efficient investments — ISAs are an extremely efficient way of sheltering your savings and investments from tax. Always use your full allowance, which this year is £11,280, of which £5,640 can be invested as cash.
2. Time your income and know your tax brackets — make sure that you and your spouse are making maximum use of personal allowances and lower rate tax bands. If you are an entrepreneur, then it’s likely you’ll have some influence over the timing of your income, and so working out the timing of bonuses and dividends can make a big difference. Where married couples or civil partners own a company, there may be the possibility of ensuring tax efficient extraction of profits by some forward thinking .
3. Form of income — Capital gains tax rates are substantially lower than the highest rate of income tax. Entrepreneurs may have the ability to extract the wealth out of their business in the form of capital payment (i.e. shares) rather than income, especially if the income is surplus to current requirements.
4. Wealth planning — Don’t put this off just because it is a difficult subject. With only a small increase in the Inheritance Tax (IHT) nil rate band on the horizon, there are many planning ideas and IHT efficient structures and products in the market place which can mitigate the burden.
5. Review your pension planning strategy — Currently tax relief is available on pension contributions of £50,000 per tax year but this is reducing to £40,000 from April 2014. The lifetime allowance will reduce from £1.5m to £1.25m at the same time. Taxpayers should consider maximising pension contributions each tax year but particular 2012/13 and 2013/14 before the allowance reduces.
“I encourage taxpayers to do some research into the numerous incentives that are available, and possibly save some money. We all work hard to create our income, and we need to work equally hard to protect it,” Paul Belsman, National Head of Tax at RSM Tenon, said.
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