Tax planning & wealth management
Planning your taxes
When it comes to taxes, it's wise to ensure you aren’t paying more than you need to.
Taxation can be very complicated and the rules, reliefs and allowances often change, so it’s important to make sure you are aware of the current laws to make sure you can manage your personal finances in a tax-efficient way.
By understanding how taxation works you should be better prepared to manage your finances, and could end up saving money in the long run.
In the UK, the tax year runs from 6 April through to 5 April. During this time the government requires everyone to pay an appropriate level of income tax on their earned and other taxable income. As well as income tax there are also many other different forms of tax; the major ones are:
- National Insurance
- Capital Gains Tax
- Inheritance Tax
- Corporation Tax
IFAs take this into consideration when you seek advice, they also look at your finances and current personal living conditions. There are a few ways that you can reduce your tax liability:
- Where possible, ensure that there is an appropriate split of income between spouses
- Use Marriage Allowance where one spouse is a non-taxpayer and the other pays tax at no more than basic rate
- Utilise all allowances available to you; dividend, personal savings, personal allowance, capital gains
- Incorporation of a sole trader or partnership if appropriate
- Pension contributions
- Gift aid payments
- Reviewing the tax efficiency of the dividend/bonus/pension remuneration strategy for business owners
- And many more
What we do
Tax planning is best done with the help of a financial adviser, and we at Niche have years of experience in helping clients manage their taxes so that they can save the maximum amount legally.
We will be able to help you plan your taxes in advance, and come up with effective strategies that will use the legal reliefs and allowances to minimise the amount you have to pay.
Then we will usually assess your financial situation, and look at your financial goals to help come up with a suitable strategy for you.
Capital gains tax
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax payable on the gain or profit you make when you sell, give away or otherwise dispose of something. It applies to assets that you own, such as shares or property. There is a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill. Sometimes you may have no tax to pay.
Most assets are liable to Capital Gains Tax when you sell or dispose of them. For someone resident and domiciled in the UK, this applies whether they are in the UK or overseas.
However some assets are exempt, such as your car, personal possessions disposed of for £6,000 or less, and usually your main home.
What else could be affected by Capital Gains Tax?
Many events can lead to a gain or loss, besides the obvious one of selling an asset. A gain may sometimes occur when you least expect it.
Making a gift to a child - or to other people or companies - is a 'disposal' for Capital Gains Tax purposes. You will need to work out if Capital Gains Tax is due. However, making a gift to a spouse, civil partner or charity usually won't lead to Capital Gains Tax.
If you inherit an asset, it's not liable to Capital Gains Tax until you sell or dispose of it. You'll usually need to get a valuation of the asset at the date of death to work out the capital gain or loss as you are only liable for any gain occurring since the date of death.
Divorce, separation or dissolving a civil partnership
When you divorce, separate or dissolve a civil partnership, you may end up transferring assets between you. These are disposals for Capital Gains Tax purposes. Whether you're liable depends on the date of transfer and whether you're living together at the time.
Are there any allowances?
You have an annual tax-free allowance for Capital Gains Tax known as the 'Annual Exempt Amount'.The Annual Exempt Amount for the tax year 2019/20 is:
- £12,000 for each individual
- £6,000 for most trustees
If your overall gains for the tax year are above the Annual Exempt Amount, you'll pay Capital Gains Tax on the excess.
If your overall gains are below the Annual Exempt Amount, you won't pay Capital Gains Tax.
Your overall gain in 2019/20 is £18,000.
The Annual Exempt Amount is £12,000.
You'll pay Capital Gains Tax on the excess of £6,000 (£18,000 - £12,000).
The £6,000 is added on top of your income for the tax year and taxed at 10% on any part falling in the basic rate band (or below) and 20% on any part of the gain falling in the higher or additional rate bands. Gains on residential property (that don’t qualify for the main residence exemption) are taxed at 18% and 28% respectively.
When do I have to pay Capital Gains Tax?
You pay Capital Gains Tax on any profit you make when you 'dispose' of an asset, which means:
- Selling it
- Giving it away as a gift
- Transferring it to someone else
- Exchanging it for something else
- Getting compensation for it - like an insurance payout if it's been destroyed
You don’t pay Capital Gains Tax on any gains you make from:
- Your car
- Your main home
- Individual Savings Accounts (ISAs)
- UK government gilts (bonds)
- Personal belongings worth £6,000 or less when you sell them
- Betting, lottery or pools winnings
What is it?
Inheritance Tax is paid on an estate when somebody passes away if it exceeds a certain value. It's also payable on some gifts or assets placed in trust during a person’s lifetime. On average, most estates don't have to pay Inheritance Tax because they're valued at less than the threshold (£325,000 in 2019/20). Inheritance tax is payable at 40% on the amount over this threshold.
How do you know if you are over the threshold?
To find out if Inheritance Tax is due on an estate, you must first value the estate. This means adding up the value of all the assets in the estate - such as a house, possessions, money and investments - and deducting any debts the deceased may have owed, including household bills and funeral expenses.
An estate also includes the deceased's share of any jointly owned assets and the value of any assets held in certain types of trust.
You should also review any gifts that the deceased may have made in the seven years before their death to see if they are exempt, and if they aren't exempt, include them in the overall value of the estate. In some casts, taper relief may be available.
Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies - to as much as £650,000 in 2019/20. Their executors or personal representatives must transfer the first spouse or civil partner's unused Inheritance Tax threshold or 'nil rate band' to the second spouse or civil partner when they die.
Who is responsible for paying Inheritance Tax?
Inheritance Tax is payable by different people in different circumstances. Usually, the executor or personal representative pays it using funds from the deceased's estate.
The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax - but this is not common.
Can I reduce the amount of Inheritance Tax that I have to pay?
There are many ways that you can reduce the amount of inheritance Tax that you have to pay, such as:
- Annual inheritance tax gift exemption: The first £3,000 given away each tax year is completely ignored as part of your estate and is not subject to Inheritance Tax if you die. If you don’t give away the money this year, you can carry it forward for one tax year (no more) and use it then as long as the current year's allowance is also fully used.
- Gifts to charities and political parties are inheritance tax-free: As well as the gifts themselves being free from inheritance tax, leaving at least 10% of your net estate to a charity can lower the rate of tax you have to pay on your taxable estate from 40% to 36%.
- Small gifts exemption: Gifts of no more than £250 each to any number of recipients per tax year are excluded from inheritance tax (and are not counted toward the annual gift exemption). For example someone with 12 grandchildren could give each of them £250 annually as a birthday present and it wouldn't be counted as part of the estate.
- Regular gifts out of income: As long as they don't reduce your standard of living these gifts are immediately out of your estate.
- Gifts on marriage: Gifts of £5,000 from parent, £2,500 from a grandparent, and £1,000 from anyone else made to a bride or groom are exempt from Inheritance Tax.
- Woodland, heritage, farm and business: If you own an agricultural property that's part of a working farm, then a percentage may be exempt from tax. Similarly if you own woodland, those who receive it in your will can apply for the timber on it, but not the land itself, to be deemed exempt. Do check what happens when the timber is sold, as inheritance tax may apply at that time.
- Make other gifts and survive 7 years: Lifetime gifts to other individuals or into trusts that don’t fall within one of the above exemptions will fall out of your estate after 7 years. Gifts into discretionary/flexible trusts can suffer an immediate 20% inheritance tax charge if they exceed your available nil rate band.
What is corporation tax?
Corporation Tax, also known as Corporate Tax, Business Tax and Company Tax is the tax payable on the profits from doing business as:
- A limited company
- Any foreign company with a UK branch or office
- A club, co-operative or other unincorporated association, e.g. a community group or sports club
Taxable profits for Corporation Tax include the money your company or association makes from:
- Doing business ("trading profits")
- Selling assets for more than they cose ("chargeable gains")
If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.
If your company isn't based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.
How is the tax determined?
Company profits subject to tax are often determined much like taxable income for individuals. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganisations, may not be taxed. Some types of entities may be exempt from tax.
Paying corporation tax
If your company is liable for paying Corporation tax then you must:
- Tell HMRC that you are liable
- Pay the correct amount of Tax
- File a complete Tax Return with Supporting Documents
How can we help?
We at Niche have been working with businesses and clients for years to make sure that their tax is handled in the most efficient way, using government provided schemes and plans to reduce the total amount of tax that clients have to pay. If you contact us today we will arrange a meeting with you as soon as possible.
What is income tax?
Income Tax is a tax on your income.
However, a lot of people don’t know that their entire lives can affect their Income Tax; your job, your savings, your living conditions and lifestyle can all affect how much Income Tax you pay. Only certain things are taxable; like earnings from your employment, income from your pension, income from property, shares or dividends and interest from savings.
Which income is not taxable?
Some income is not taxable, which means that tax is not paid on it. This income should therefore be ignored when estimating how much tax is payable. Examples of income which is not taxable include income from ISAs, premium bond prizes, Housing Benefit, Child Benefit, the first £2,000 of dividend income, the first £1,000 of savings income (basic rate tax payers) or £500 (higher rate taxpayers). Also, income falling within your personal allowance (up to £12,500 in 2019/20) isn't taxed (the personal allowance starts to reduce once total taxable income exceeds £100,000).
What are the tax levels?
Basic Rate Tax – paid on the first £37,500 of taxable income - will be taxed at 20% (7.5% taxable dividends).
Higher Rate Tax – paid on taxable income between £37,500 and £150,000 - will be taxed at 40% (32.5% dividends).
Additional Rate Tax - paid on taxable income over £150,000 - will be taxed at 45% (38.1% dividends).
Different tax bands and rates apply in Scotland to earned and pension income.
How we can help
Income Tax can be a complicated area and it can be hard to know what you do and don't have to declare for Income Tax purposes. You need to include information on many different things in your annual tax return, whether you're employed, self-employed or running a business, or getting your income from something else like property or other kinds of investments. ‘Self-assessment’ means that it is your responsibility to ensure the information submitted to HMRC is accurate.
At Niche we are experts when it comes to helping with tax planning and will make sure that you are saving the most money that you can.