By Louise Misiewicz
Article relevant to the tax year 2017/18
Are you maximising your allowances to reduce tax liabilities?
One of the most common areas in which me and my team of expert tax specialists assist property investors in the UK to make more money is by firstly providing tax-efficient wealth management advice. This helps to ensure that my investor clients are fully utilising their allowances to reduce tax liabilities, thus generating more wealth for them in the long-term. Careful financial planning helps to protect them. Our team of property tax experts are on hand to best advise our clients on how to maximise their incomes whilst remaining tax-efficient and allowing them to build a more secure and stable financial legacy. According to statistics, the HMRC took an extra 6.7% in tax revenues in the tax year 2016/17, with receipts up £35.6 billion, to nearly £570 billion. This is the steepest jump since the Recession, with some industry commentators claiming that the increase is due to increased taxation on wealthy individuals in the UK. In particular, Capital Gains Tax (CGT) receipts jumped by nearly 20%, with stamp duty on property transactions also up by 10%, while inheritance tax payments have also set new higher record levels. We previous wrote an article to demonstrate how you can reduce your CGT liability. Some of the basic tips I provide to help reduce tax liabilities for my property investor clients include: Inheritance tax (IHT) can cost families hundreds of thousands of pounds, but with careful tax planning and wealth management advice, investors can pass on up to £1 million tax-free. Potentially-exempt transfers allow investors to also give away tax-free assets, provided that they live for another seven years. I also advise my property investor clients that the careful use of Gifting, either directly or through Discretionary Trusts, can reduce tax liabilities. We also wrote an article on ways that you can reduce IHT.
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I also recommend that my clients plan ahead to avoid CGT liabilities on share price and rental property growth, or when selling business assets. For example, everyone can take £11,300 this year free of CGT, so couples could potentially protect up to £22,600 of gains. It’s always worth taking advice before selling an asset, rather than afterwards, and I advise my client to do this, so that they are fully aware of the potential tax liabilities in effect from selling assets in the UK. Higher and additional rate taxpayers who make charitable donations can reclaim some of the cost through their tax return, or by asking HMRC to adjust their tax code. I can advise further on this, if needed. If one person in a marriage or civil partnership pays tax at a higher rate, they should consider shifting assets into their partner’s name. This allows couples to make the maximum use of income tax and CGT allowances, as well as remaining tax-efficient and helping to protect their financial legacy. The shifting of assets could apply to buy-to-let properties, cash savings, or shares held outside of ISAs and pensions. The marriage allowance is designed to help couples, where one partner pays the standard rate income tax, but the other is a non-taxpayer, and could be worth up to £230 a year which can be back-dated, adding up to a potential tax break of £662. Pensions are also a good way of passing on wealth to the family free of IHT, but just make sure that pensions lifetime allowances are not exceeded. It’s also possible to invest up to £3,600 in a pension on behalf of a non-earning spouse, and claim tax relief at 20%. Savings are another area where I advise my clients to consider savvy wealth management measures. For example, every adult in the UK can invest up to £20,000 in a tax-free individual savings account (ISA) allowance, with the money free of income tax and CGT until death. Basic rate taxpayers can also earn £1,000 of interest tax-free on cash held outside an ISA, or £500 for higher rate taxpayers. This tax year, the first £5,000 of any dividend income is also tax-free. I also advise property investors to consider investing in a Venture Capital Trust (VCT) or an Enterprise Investment Scheme (EIS), as both give 30% income tax relief, with tax-free capital growth. VCTs also pay tax-free income, while an EIS offers CGT and IHT savings, but come with certain risks to be aware of. You can read more about EIS investments in our other article. I’ve also written a detailed article on the tax-free benefits of Real Estate Investment Trusts (REITs) which is useful additional research material – read it in full here.
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By now you would have noticed that the number of tax changes means that you need to plan for the future to ensure that you keep more of what you earn. Property investors: How does Section 24 (mortgage interest relief) affect you? How are your properties going to perform once Section 24 (mortgage interest relief) comes into full effect? Doctors/Dentists: Have you incorporated your private practice work into a Limited company? Have you structured it to ensure that you and your family takes advantage of the tax breaks? Stephen Covey said that “people climb to the top of the ladder, only to find out that it is set against the wrong wall”. Many people go about their business and at the end of the year feel that they have not moved forwards. The finance, tax and wealth sessions have been designed to review your financial and tax plans for the next five years by reviewing your income streams, lifestyle costs, investment returns, and legacy and estate planning needs. Learn more about my Finance, Wealth and Tax Planning service – Click Here. Please use the redeem code “CRM25” to get 25% off your next wealth planning call, face-to-face in our Nottingham office. I’ve written other related articles which will be useful on the subject of minimising tax liability, including: Property developers do not have to pay SDLT on property flips How investors can reduce inheritance tax liability Capital Gains Tax (CGT) from 2017/18
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