Ask the expert
Stephen Smith is the YorkMix finance and tax expert. He runs TaxAssist York, and is here to help you with all your money concerns
We are all looking to reduce our tax bill. Here are some key tax planning tips that I know have worked for York businesses and residents.
1. Pension contributions
Make maximum pension contributions. The maximum level of gross annual pension contributions you can make which attract tax relief for a tax year is known as the annual allowance (AA). The standard AA is £40,000 and can be supplemented by utilising unused pensions tax AA carried forward from the three previous tax years.
2. Check your tax rate
You lose £1 of your tax-free personal allowance for every £2 of taxable income over £100,000.
The impact of the loss of the personal allowance is to increase the effective tax rate on the income between £100,000 and £125,140 from 40 percent to 60 percent.
The exposure to this rate of tax can be reduced by making pension contributions and/or gifts to charity as these have the impact of reducing your taxable income for this purpose.
3. Make the most of your ISA
Everyone can take advantage of their annual tax-free ISA allowance, for the 2021/22 tax year you can deposit upto £20,000 into ISA accounts.
This can all be put in a cash ISA, a stocks and shares ISA or spilt between both cash and stocks and shares.
4. Use your Capital Gains Tax allowance
Capital gains of up to £12,300 are tax free in 2021/22. Remember, if you don’t use the allowance within the tax year, it’s lost forever.
5. Transfer assets to your spouse
You won’t be charged capital gains tax if you transfer assets to your spouse or civil partner and a lower earning spouse may pay more favourable income tax rates.
Therefore, it may be worth transferring savings and investments to you husband, wife or civil partner if they pay a lower rate of tax than you do.
6. Invest with an Enterprise Investment Scheme
To encourage investments in early stage businesses, the government offers extra tax relief on some investments.
If you buy shares in a qualifying company, you’ll be able to deduct 30% of you investment from your income tax bill for the year.
The amount you can invest in any given year is £1 million resulting in savings of up to £300,000 in income tax.
7. Reduce Capital Gains Tax on a rental property
A landlord will normally be liable for capital gains tax when they make a profit from selling a rental property.
However, if the property has been your main house at some time in the past, you will be able to claim private resident’s relief for this period, and also claim this for the last nine months of ownership.
8. Cut a future inheritance tax bill
Gifts aren’t counted towards your inheritance tax bill if you live for a further seven years after making them. These are known as potentially exempt transfers (PETs). A gift from your estate can reduce your bill significantly.
What’s more you can give away up to £3,000 each year without ever having to worry about the potential tax as well as multiple small gifts of £250 providing they don’t go to the same person.
To discover more ways to save tax give us a call on 01904 414411