Appropriate planning could help you substantially reduce tax liabilities and defer tax payments
As the UK tax system continues to grow ever more complex, and with more responsibility being placed on the individual to get their own tax right, ensuring that you receive the best professional advice to optimise your tax position is paramount. The tax planning advice you need will depend on your particular circumstances and how complicated your financial affairs are. In this blog, we have provided details of a number of tax planning areas you may wish to review now that the new financial year is upon us.
It’s good to give
Personal income over £150,000 is taxed at 45%. However, because the personal allowance is reduced by £1 for every £2 of net income over £100,000, for income between £100,001 and £121,200 the effective top rate is 60%. Individuals with incomes near these thresholds could potentially reduce their tax liabilities by reducing their taxable income below £100,000 or £150,000. This may be achieved by changing income into non-taxable forms, giving income yielding assets to a spouse with lower income, deferring income, making pension contributions or making payments to charity.
Exchanging cash payments
It is already common for employers to offer arrangements allowing employees to exchange a cash payment for approved share options, benefits in kind or pension contributions in lieu of salary. Employees who exchange income (for example, to take them below the £100,000 threshold) in return for a tax-free pension contribution made by their employer would save Income Tax and NIC.
Taxable dividend income
The effective rate of tax on taxable dividend income, for example, from shares not held in an Individual Savings Account (ISA) or pension fund, has risen by up to 6% for some taxpayers since 6 April 2016. However, there is also a new £5,000 nil rate band on dividend income, so the exact rate of tax anyone pays on their dividend income will depend on the amount they receive and their other income in 2016/17.
Rearranging substantial investments
If you have substantial investments outside an ISA or other tax-efficient wrapper, consider rearranging them so that they produce either a tax-free return or a return of capital taxed at a maximum of only 28%, rather than income taxable at a maximum of 45%.
Company cars tax
Each year, the taxable benefits on company cars are effectively increased by reducing the level of CO2 emissions that trigger each 1% increase in benefit. For example, a car with emissions of 150g/km triggered a 25% taxable benefit in 2015/16, but the same car will give rise to benefits of 27% in 2016/17 and 29% in 2017/18.
It may be worth using your own car for business travel and claiming a tax-free mileage allowance from your employer. If fuel has been provided for private use, consider whether full reimbursement of the cost to the company would be a cheaper option than paying the fuel scale charge, which is based on the car’s CO2 emissions.
Time to talk to Admiral Wealth Management?
To discuss your requirements or for further information, please contact Admiral Wealth Management on 01472 357035 or email email@example.com – we look forward to hearing from you.