We at Tax Compute do not condone aggressive tax avoidance but having said that we do recognise that individuals and businesses want to pay less tax. So we all need to take advantage of the tax saving measures that HMRC accept and sometimes encourage as part of the tax regime. So below are a few pointers as to how you can manage your annual tax bill sensibly and legally.
- Paying into a pension has amazing benefits.
- You get Tax Relief on the contributions.
- You can take your pension at 55.
- You can usually take up to a quarter of your pension savings as a tax-free lump sum.
- When you get to retirement age you have an additional nest egg.
- If you have a Limited Company put your life cover policy through the business. The premiums are paid for by the company, rather than the employee, which results in a tax saving.
- ISA and LISAs are ways of saving tax on your savings by claiming the tax free allowances.
- EIS and SEIS can reduce your tax bills if you want to invest in risky small and medium sized businesses you don’t control.
- If you are self-employed or have a limited company make sure your accountant advises on how best to pay yourself. Be aware of:
- Higher rate tax thresholds.
- How to reduce National Insurance.
- Manage Dividends.
- Make sure you claim allowable expenses and keep receipts.
- There are favourable tax benefits in leasing Plug in electric cars and/or pickup trucks.
- Take advantage of your annual capital gains tax allowance.
- Start planning for Inheritance tax. There are basic strategies that you can adopt to maximise the amount of tax that you leave your children.
- There is no Inheritance Tax to pay on certain gifts you make to family and friends during the course of the year.
- You can give away £3,000 worth of gifts each tax year.
- Wedding or civil ceremony gifts to friends up to £1,000/person. This increases to £2,500 for grandchildren or great grandchildren and up to £5,000 for a child.
- Gifts of no more than £250 to any person per tax year are excluded from inheritance tax and are not counted toward the annual gift exemption.
- In the 2020/21 tax year, everyone is allowed to leave an estate valued at up to £325,000 plus the new ‘main residence’ band of £175,000 giving a total allowance of £500,000 per person. A married couple can currently leave £1,000,000 tax-free.
8. The Covid-19 pandemic will we all suspect lead to some tax regime changes. To pay back the loans the government will need to raise taxes. There may be a budget soon which means you may wish to start planning now before the possible tax changes come into force. Here are some suggestions that you may wish to consider:
- The Chancellor may increase CGT so if you have taxable gains it may be advisable to crystallise them before the budget.
- Changes in Inheritance Tax. The thresholds may reduce so consider making gifts to your family before the budget.
- Changes in Pensions, reduction in the tax free lump sum and/or higher rate tax relief.
- Changes in Corporation tax.
- Dividend tax for limited companies.
- Changes in NI for the self-employed.