There are many tax reliefs available to individuals and some are often overlooked. Here are some ideas you could consider before the end of the tax year on 5 April, so check that you have made the best use of them.
- Inter-spouse transfers – you can maximise capital gains and income tax rates and allowances through these exempt transfers, if your annual income is between £100,001 and £125,000.
- Salary vs Benefits – exchanging part of your salary for payments into an approved share scheme or additional pension contributions could minimise liabilities.
- Inheritance Tax (IHT) – reducing IHT requires careful planning of your estate, Will and trusts.
Inheritance Tax (IHT)
The number of families affected by IHT is increasing, despite couples being able to pass on up to £1 million tax-free, in most cases. Below are some steps you can consider to reduce your IHT bill:
- Charitable gifts – if you leave at least 10 per cent of your net estate to charity, you will receive a reduced rate of 36 per cent rather than 40 per cent.
- Gifting to loved ones – this requires careful planning as gifts given seven years before a person’s death can pass out of their estate for tax purposes.
- Passing on pensions – make sure you update your Will to ensure that your family receives the full benefit of any remaining pension fund.
- Trusts – recently, there have been many complex changes to the way trust funds operate. It is essential to seek specialist help.
Take advantage of Personal Allowances
To ensure your hard-earned pension does not get subject to tax, you should consider protecting your pension with the Life Time Allowance (LTA), which currently stands at £1,073,100 for the 2020-21 tax year.
Additionally, the annual pension allowance enables you to invest up to £40,000 per annum into a pension tax-free.
Do you know how to ensure your pension is tax-efficient?
If you are aged over 55, you may be able to start drawing down pension benefits now from a personal pension such as Self-Invested Personal Pension (SIPP), even if you are still employed.
Plus, every UK resident, including children, can make annual net contributions of £2,880 per year (a gross of £3,600), regardless of whether they have earnings.
Tax-efficient investments include the following:
- Individual Savings Accounts (ISAs)
- Share Schemes
- EIS and SEIS
- Venture Capital Trust Investment
- Community Investments
- Social Enterprise Investments
- Life Assurance Bonds
- Offshore Bonds