You might think that it doesn’t make sense that tax saving should be easy, because if it were the government would never get any tax. But there are some straightforward and simple things that you can do, that can have a noticeable effect on your tax bill. Here are ten of the easiest:
1. Spread shares between spouses. Whether you’re talking about your family trading company, or shares in quoted blue chips, it makes obvious sense to ensure that the income is spread round the family, to reduce, potentially, the rate of tax that the dividends will bear, and, at the very least, to take advantage of the £2,000 per person tax free dividend amount.
2. If you can cope with the slightly less convenient usage, look hard at making your next car an electric one. Electric cars are highly favoured by the tax system, with currently nil, but in future minimal, benefit in kind charges if they are provided to you by a company, for example.
3. You can save a lot of inheritance tax, very easily, by making regular gifts to those who are in any case going to be your beneficiaries in your will. For example by setting up a standing order in favour of your children or grandchildren, the amount becomes part of your regular charges and is less noticeable psychologically. More importantly, from the inheritance tax point of view, these become “normal expenditure out of income”, which are completely exempt from inheritance tax. In other words, there’s no £3,000 limit, and the regular gifts you’ve made in the seven years prior to falling off your perch don’t get brought back and charged to inheritance tax either.
4. Simple to the point of boredom, keep all your receipts for expenses that are claimable against tax! Whether you are employed or self employed, the rules differ slightly, but there are a lot of common features to the type of expenses that are claimable, particularly travelling type expenses. Think of it as getting a receipt from the taxi driver for £25 being equivalent to saving yourself £10, if you’re a 40% taxpayer. So that £25 receipt is equivalent to a £10 note, which you wouldn’t simply leave lying around in the taxi or throw away.
5. If you are the sort of person that looks to make money by doing up residential properties and selling them, or even just holding them long term for capital growth, it’s much simpler and more effective from the tax point of view, as well as being simpler practically, for this to be one large property – your home – than a number of small investment properties. Normally speaking the profit you make on selling your own home is completely exempt from capital gains tax, whereas the sale of all those hassley investment properties would be chargeable, on the gain made, at 28%.
6. Use a good accountant! The fact of the matter is there are all shades of knowledge and competence in the accountancy profession as, we suspect, in any other profession. But there are definitely two different types of accountant who are quite clearly marked out from each other. First, and probably most frequently found, is the accountant who does nothing but add up your numbers and tell you how much tax you’ve got to pay. This is comparatively easy and comparatively risk free for him. Then you’ve got the slightly rarer animal who actually advises you on how to save tax. It’s clearly going to be worth paying higher fees if you can get hold of one of the second sort. How do you find them, though? Well, commonly word of mouth is the method of used for picking new professionals, and although this is by no means infallible (tradesmen who have been recommended to us by friends have turned out to be duds) it’s better, probably, than just going by the empty promises in someone’s website. But, in an unashamed piece of self promotion, why not try The Schmidt Tax Report’s associated accountancy firm, APT? Founded by our technical editor Alan Pink many years ago, this firm comprises people who will definitely be on your side against the taxman, rather than, as so frequently happens, the other way round.
7. If you run a company, take your income out of that company, if you have to, by way of dividends rather than remuneration. Dividends don’t incur the fairly hefty national insurance bill which is associated with salaries and wages. If a number of people are taking income from the company, and this doesn’t match up, in proportions, to their shareholdings, you can relabel those shares as A B C etc so as to pay different rates of dividends to different individuals.
8. For property landlords, a simple way to reduce the amount on which you’re paying tax, of course, is to get round to doing those repair/refurbishment works that, if you are honest, the property has needed for some time anyway.
9. One fairly magical way of massively reducing your tax if you are landlord, conceptually at least if not practically, is to run the property, if it’s a suitable type and in a suitable area, as furnished holiday accommodation. Not only will you get full tax relief for any interest you are paying on a loan to acquire the property (now severely restricted for normal lettings), but you’ll also pay a much lower rate of capital gains tax, at least under current rules, on selling the property: 10% if you qualify for the modern equivalent of entrepreneur’s relief, as against 28% payable on normal let properties.
10. If you are building up an investment property portfolio for your family, consider doing this an LLP rather than by way of simple direct ownership. Whilst an LLP structure is clearly not as straightforward as direct ownership in itself, it does make flexibility of tax planning very much easier and simpler going forward. You can at any time introduce new members (given care as to the profit sharing terms, to avoid triggering CGT or SDLT) and you can pay various members different amounts each year with no requirement for consistency. So whilst putting properties into LLP’s that were previously personally owned and introducing new partners, needs a certain amount of care and, almost certainly, tax advice, using the LLP going forward can be delightfully simple and delightfully lucrative in terms of saved tax.
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