Saving Inheritance tax
Inheritance tax can be a tricky issue to deal with for most people but it is generally considered a “voluntary tax” as good tax planning can greatly reduce your inheritance tax liability or erase it completely. Assets exceeding the current inheritance tax threshold of £325,000 (for tax year 13/14) are taxed at 40%. That’s basically half of your excess assets going straight to the government and not to your loved ones. This is why inheritance tax can be extremely costly for those who have not done sufficient planning. Fortunately, there are many exemptions and allowances to utilise which would significantly reduce the amount of inheritance tax you have to pay. Here are a few things to consider that can help you save some inheritance tax:- Make a Will Making a will allows you to know that your estate is divided exactly as you want it to be when you die. In the absence of a will, people that you wish to benefit from your estate such as an unmarried partner may not be entitled to any share in the event of intestacy. What is a gift? A gift is something of value given unconditionally to someone without any reservations. The biggest asset that most people are in possession of is their house. However, giving away your house yet trying to live in it may allow HMRC to invalidate the gift as genuine and apply tax on it. Give away sooner Majority of gifts you make are classified as “potentially exempt transfers”. If you survive more than seven years after making the gift, no inheritance tax is due on that gift. The amount of tax can be reduced depending on how long you lived after making the gift due to taper relief. Gifts made less than three years before death have no reduction in tax. If the gift was made three to four years before death then tax is reduced by 20%. This increases by 20% for every extra year the donor lives up to seven years where the whole amount is exempt. Therefore it can help relief some financial burden on your death estate if you make gifts sooner rather than later. Allowances to take advantage of You can give away gifts worth up to £3,000 in total per person every tax year and these gifts will be exempt from inheritance tax when you pass away. Any unused part of this annual allowance can be carried forward to the following year, but if you don’t use it in that year, the carried-over exemption expires. You can also give up to £5,000 to your children when they marry as a wedding gift. Grandparents can give up to £2,500 and others up to £1,000. Regular Gifting Regular gifting can dramatically reduce your inheritance tax bill as long as they meet the following criteria: they must be from your income, they must be regular and they must not decrease the standard of living of the donor. Be generous on birthdays Gifts under £250 to any recipient per tax year are exempt from inheritance tax. This means that it might be worth giving your boy a big birthday present even if he’s been naughty as it helps reduce the tax bill. Gifts to charities and political parties are tax-free It’s good to know that any donations you make to charities or political parties are inheritance tax free at least. Getting Tax Advice While it is generally more economical for you to do things by yourself, if you have sizeable assets then seeking professional tax advice is well worth your money. You may end up paying a few hundred pounds to potentially save over hundreds of thousands of pounds. I’m no bargain hunter but that sounds like a good deal to me. By Wilson Law at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered in the Finance Industry to be the experts in all types of Tax including Inhertance Tax. Helping and supporting business and individual throughout the UK, they regularly help people with their Inhertance tax issues. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. BUDGET 2014 HIGHLIGHTS
PERSONAL ALLOWANCE The personal allowance is the amount of income you can receive each year without having to pay tax on it. This amount is to increase to £10,000 for 2014/15 and to £10,500 for 2015/16. The basic rate taxpayer will see a saving of about £112 in 2014-15 and a further £100 in 2015-16 on their annual income tax bill. HIGHER RATE TAX PAYERS The threshold for which individuals pay tax at the higher rate of 40% will increase by 1% for both tax years. ANNUAL INVESTMENT ALLOWANCE For businesses, the annual investment allowance will increase from £250,000 to £500,000 until 31 December 2015. HIGHER ANNUAL SUBSCRIPTION LIMIT FOR INDIVIDUAL SAVINGS ACCOUNTS FROM 1 JULY 2014 The chancellor has announced big changes to the Individual Savings Accounts (ISA). The new policy means that, from July onwards, it will be possible to save up to £15,000 in total. Furthermore, the whole sum could be in cash unlike before where only half of the limit could be saved in cash and the rest in shares. Also, the 10p tax rate for savers will be abolished. CLASS 2 NIC From April 2016, Class 2 National Insurance Contributions (NIC) will be collected through self-assessment. CHILD-CARE HELP Parents paying 80% of childcare costs of up to £10,000 per child, aged up to 12, to a registered provider will get the remaining 20% tax-free from September 2015. NEW TRANSFERABLE TAX ALLOWANCE From April 2015, there will be an introduction to a new transferable tax allowance for married couples and civil partners. PENSION CHANGES All tax restrictions on pensioners' access to their pension pots to be removed, ending the requirement to buy an annuity. The taxable part of pension pot taken as cash on retirement to be charged at normal income tax rate, down from 55%. There is an increase in total pension savings people can take as a lump sum to £30,000 By Wilson Law at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be small business experts helping and supporting business in the UK. They regularly help new business start up and provide valuable support for new businesses. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Properties have always been a relatively safe and sound option for investment. As a landlord, renting out your property can offer an alternative source of income in the form of rent and potentially give a good return on the initial investment through capital appreciation. However, if you’re looking for huge returns over a few days then property investment is unlikely to be your preferred choice. Nonetheless properties have historically been a low risk investment and have provided modest returns over the long term. Here are a few things to consider if you wish to maximise your rental income:
Deducting Allowable Expenses You can reduce the amount of rental income that is taxable by taking advantage deducting allowable expenses. There more common expenses you can deduct are:
The costs should be wholly and exclusively incurred as a result of renting out the property. If a part of the expense meets this condition then that part can be deducted from income. Cost comparisons Saving costs can only have a positive effect as expenses are the only thing eating into your rental income. Try reviewing your costs on an occasional basis (once a quarter) and you may witness bargains that could help you save a lot of money. Service providers tend to offer sizeable discounts to new customers but only have stagnant prices for existing customers. Getting quotes from different companies that offer the same service can sometimes amaze you at how wide the price range can be. Just be sure you don’t jeopardise the quality of services just to save a few pennies. Annual Investment Allowance Expenses of a capital nature are not deductible. You cannot deduct from income the cost of the property you are renting out, expenditure that adds to or improves the property or the cost of renovating a property from a state that cannot be rented out. However, capital spending can be deducted using the Annual Investment Allowance. From 1st January 2013 (until 1st January 2015), you can deduct up to £250,000 a year for many types of capital spending using the Annual Investment Allowance, such as commercial vehicles, business furniture, computers, machinery and tools. It would be beneficial to take advantage of the temporary rise in the Annual Investment Allowance as it is likely to revert back to around the limit of 2012/13 (£25,000) after January 2015. Landlord’s Energy Savings Allowance (LESA) Until April 2015, an allowance of up to £1,500 per let residential property can be claimed for the cost of loft, wall and floor insulation, draft proofing and hot water system insulation. The LESA was introduced to encourage landlords to improve the energy efficiency of let residential properties. These expenditures are usually not deductible from taxable income and are not eligible for capital allowances. Wear and Tear Allowance or Renewals Allowance For fully furnished properties, a wear and tear allowance can be claimed for furnishings such as beds, carpets and appliances. The allowance is 10% of the net rental income (gross rent minus utility bills, service charges and council tax) you receive from these properties. With the renewals allowance, you can claim expenses of any furniture as you replace them. Any money you make from the disposal of the asset must be deducted and the cost of any improvements (e.g. an upgrade from a washing machine to a washer-dryer) Note that you can only claim either the Wear and Tear Allowance or the Renewals Allowance but not both. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Tips to avoid paying too much tax if you’re self employed
According to Which.co.uk, we paid an estimate of £12.6 billion in unnecessary tax in 2012. People who are self-employed or have their own businesses are particularly prone to overpaying tax. But by doing a bit of research and accessing your tax options, you can maximise your income and safeguard your finances for the future. Spreading income tax payments among the family Every individual that is able to work has a personal allowance of £9,440 for the financial year 2013/14. If you are earning over the 20% rate band for income tax, it may be wise to employ a family member to share a part of your workload. Income up to £9,440 would be free of income tax for him or her, and an allowable expense for you. This is especially ideal for any children you have over 16 that can work over the holidays as their wages are also tax deductible. Furthermore, no national insurance is payable if they earn less than £149 per week. Additionally, members earning between £109-148 are entitled to certain state benefits such as building towards the state pension. Using the personal allowance to its maximum Rather than one individual holding the bulk of the income and facing a higher rate of income tax, it is of best interest to arrange the finances in a way that lessens the tax burden. This can be achieved by building up a state pension for your partner and/or make pension payments to build up a retirement pot. These contributions are tax relievable at the marginal rate of the payer. On a further note, £3,600 can be contributed per year irrespective of earnings so consider pensioning for any of your children helping out at the business. Taking advantage of tax free opportunities Use up you and your partner’s cash ISA limit of £5,760. Gift any surplus funds to your partner if he/she is a lower tax payer than you. Be careful of the liquidity position of the business, it may be troubling to recall back the funds. The £100,000 ceiling Try not to exceed earnings of £100,000. For every £2 of income over £100,000, your personal allowance falls by £1. This means that at an income of £118,880 you will have lost all your personal allowance of £9,440. The £9,440 is then taxed at a rate of 20%, and the £18,800 over £100,000 is taxed at a rate of 40%, meaning that your marginal rate of tax on this slice of income is a whopping 60%. You can consider increasing your pension contribution to preserve your personal allowance. Note that the maximum annual allowance is £50,000 but you can use any unused annual allowances dating back three tax years to increase your contribution. Maximising your tax allowances Each person has an annual capital gains tax allowance that can be reached before the gain is taxed. This figure amounts to £10,900 for the financial tax year 2013/2014. With sound financial planning, you can get up to £20,340 tax free each year (£9,440 for personal allowance and £10,900 for Capital Gains Tax). Be well organised and keep good records The deadline for the online tax return is 31st January (31st October for the paper tax return). Failure to commit to the deadline may result in penalties. Keeping your records in an organised manner can make your life a lot easier especially if HMRC decides to investigate. Plan ahead Good forward financial planning can maximise successful tax strategies. That’s why at Tax Affinity Accountants we make sure to sit with all our clients and run through the options for good financial planning. By Wilson Law Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. |
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