Saturday, August 20, 2022

Marginal gains and tax planning for the tax year ahead: By Jennie Brown, tax partner at Streets Chartered Accountants

Jennie Brown, tax partner at Streets Chartered Accountants, offers ‘marginal gains tax tips’.

I have always been fascinated with concept of marginal gains and how through constantly making small incremental improvements, high performance levels can be reached.

Reading some of the stories of how coaches have applied the strategy with athletes training for the Olympics, and achieved incredible results, is really captivating.

How might this have anything to do with tax I hear you say? Well, quite often when I am helping clients protect their wealth and ensuring they have a financial plan aligned with their goals and objectives, it is not one singular thing that is implemented to improve their tax position, but often a number of things, on repeat, over a number of years.

I am a firm believer when helping my clients, that before jumping into the more complex areas of tax planning, we take stock and look at the basics first, to have a strong foundation to move on from as appropriate.

There are a plethora of annual reliefs and exemptions that can be considered year on year, and by focusing on these first and ensuring they are not overlooked, over time, these can have a significant impact on improving your tax position; marginal gains.

So, what are these tax marginal gains? I highlight below those keys areas that I would recommend you are aware of and take stock of year on year, and of course, with everyone’s situation being different, it always makes sense to take advice.

  • Making use of your tax-free personal allowance, transferring any unused element if possible
  • Utilising the basic rate of tax and consider the equalisation of income between spouses/civil partners, to prevent one party being a higher rate tax payer and the other having unused basic rate band
  • Bear in mind the key thresholds; income over £50,000 can see a tapering of the child benefit and income over £100,000 can see a tapering of the personal allowance, giving rise to an effective rate of tax of 60%
  • If you have made a loan to your business, consider the payment of interest. Not only will this provide a corporation tax deduction for the company, but it could allow you to use the starting rate for savings and personal savings allowance
  • Pension contributions are always a favorite for the tax advisor, especially for those who have exceeded the above-mentioned thresholds. By making pension contributions these can reduce the amount of taxable income and enable investments to be managed in a tax-free wrapper, free from capital gains and inheritance tax, with more flexibility in recent years over the access on retirement
  • Charitable giving can also qualify for tax relief which can in turn increase the charities donation
  • ISA’s can be used to save cash or invest stocks; each tax payer has an annual allowance of £20,000 (for 2021/22). No income tax is due on the interest or dividends and any profit made on investments is free of capital gains tax. Family members can also put up to £9,000 in a junior ISA on behalf of a child for 2021/22. In addition, the lifetime ISA can be helpful for fire time homebuyers between the ages of 18-40, and up to £4,000 of savings can be topped up with a government bonus of up to £1,000
  • There are a number of investments which can also provide tax relief and these can provide instant tax relief against income tax for a percentage of the investment made, together with other tax advantages. Naturally, advice should always be sought with such investments
  • The capital gains annual exemption, currently £12,300 and frozen at this level until April 2026 is often overlooked. It is an exemption that you use or lose, so consideration should be given as to whether this can be used year on year. Consider the timing of disposals so they are staggered where possible to utilise the exemption. Together with the utilisation of income, the same applies to this exemption. Transfers between spouses/civil partners can be transferred free of capital gains tax, and therefore considering as a couple where relevant the combined use of allowances such as this is not to be overlooked. Naturally, there is a lot of more involved planning that can be considered with capital gains, deferment of gains and losses amongst a whole host of other rules and reliefs
  • There are a number of annual exemptions to consider for Inheritance Tax, also everyone has a £3,000 gifts exemption and if not used, this can be carried forward for one year only. There are also small gift exemptions and exemptions for gifts on marriage together with an exemption which is often overlooked known as regular gifts out of income. If you are not aware of these exemptions and want to make gifts, then it would be beneficial to take advice.

In addition, don’t forget, the tax rate applicable to dividends went up by 1.25% from 6 April 2022.

As mentioned, the above are the ‘marginal gains tax tips’ across Private Client planning and from here greater planning can be considered.

 

For more information on the basics and more involved planning, please get in touch with Jennie Brown jbrown@streetsweb.co.uk

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemic having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £33.60 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.







Latest news

Related news

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close