In terms of taxation, the first few months of any given year are a time to look forward and backwards. For those completing a self-assessment form ahead of the January 31 deadline, all thoughts are on the previous tax year. With that job done, dusted and signed off, the next big milestone is April 6 and the start of the new financial year.
But in between, there is often still a significant amount that can be done to minimise tax liability for the current financial year. To be more specific, there are, perhaps, just a couple of months for the taxpayer to ensure that he, or she, has taken advantages of all the available allowances and reliefs.
What that means in practice will depend on the status of the taxpayer in terms of employment, self employment and investment activity, but as the year end approaches it’s always a good idea to sit down with a checklist (and better still an adviser) to not only plan for the year ahead but also to review any measures that can and should be taken before the end of the current 12 month period.
There are some obvious checks. For instance, a self employed taxpayer or small business owner, should consider if there are any major purchases – such as new equipment – on the horizon. If so, it might make sense to bring forward the planned spend to the current financial year to take advantage of available capital allowances.
Equally, a taxpayer that receives dividend income, should consider whether he or she has taken full advantage of the dividend income allowance. The same is true of the the Capital Gains Tax allowance which currently sits at £11,300) and the inheritance tax gift allowance.
Again depending on circumstances, a taxpayer may want to consider swapping allowances with a spouse to reduce the overall capital gains and/or income tax liability. Equally, an employee might choose to swap salary for benefits, such as a share scheme or additional pension contributions
Meanwhile, any tax planning exercise should also look ahead to the coming financial year to consider the potential impact of changes already announced (and others signalled but subject to consultation).
And while Chancellor Philip Hammond’s Autumn Budget was very much a ‘safety-first’ affair, there are reforms under consideration by Government, which will affect High Net Worths. These include plans to change the taxation of offshore trusts, which will see dividends paid out to UK beneficiaries triggering a tax charge. The aim, of course, is to reduce the scope for tax avoidance by UK residents who invest funds offshore. Further to that objective, the Government plans to require intermediaries who set up offshore tax avoidance vehicles to provide details to HMRC for approval.
Extending Tax On Property
Last Autumn’s Budget also flagged plans to bring non-UK residents under the scope of the UK’s capital gains and income tax jurisdiction when they sell commercial property. This will bring commercial property into line with residential assets and has implications for High Net Worth individuals who not UK residents, but who are, nonetheless, taking advantage of the investment potential of Britain’s booming real estate sector.
For a great many High Net Worth taxpayers, all this represents just the tip of the tax regulation iceberg.
The UK tax system is notoriously complex — the rules are constantly being reformed and updated. To some extent, this complexity has fed a tax avoidance industry that typically revolves around clever structures that nominally comply with the letter of the law, while contravening the spirit. Increasingly, such tax avoidance schemes are being challenged and overturned by HMRC.
In the context of a complex tax system, it is vital that taxpayers not only take full advantage of the various reliefs and allowances available but also avoid being sucked into apparently attractive schemes that may not stand up to the scrutiny of the taxman.
Usually expert help is required. That’s why The Route — City wealth club has included tax advice as a major pillar of its membership-based wealth management offering. By talking to experts from The — Route, you can ensure that across the spectrum of income and capital gains, you will not pay any more than is necessary. But nor will The Route’s tax planning service advise on schemes or vehicles that represent anything less than best practice.
The Route will provide bespoke tax guidance, not just at the year end, but as part of a regular cycle of reviews.
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