Not using all your tax allowances
Broadly speaking you have the following allowances which are usually subject to some change following the Budget each year:
* Personal Allowance
The amount you can earn before you pay any Income Tax is worked out for you if you are employed and by submitting a tax return if you are self employed. You should always check you have not been given the wrong Tax Code. Your employer or tax adviser should be able to help you do this.
* Tax Credits
Available to those on lower incomes with children, this effectively increases the above and is paid as a cash sum. Your employer should be able to help you with this.
* Capital Gains Tax Allowance
This is the amount of profit you can make on the sale of an investment before you pay any tax and often goes completely unused.
* Age related Allowances for the over 65’s
This operates in the same way as Personal Allowances with one important difference. If you earn more than a preset threshold you lose it at the rate of £1 for every £2 over the threshold which results in a band of income between £21,800 and £27,790 being taxed at 30%. Click here to speak to us about how you can avoid this trap.
* Individual Savings Account Allowance
You can invest in one of these and receive any income or growth completely tax free. However, most people concentrate on investing to use this allowance before thinking about how to use their Capital Gains Tax allowances first. Also, many people invest very cautiously, often into cash ISA’s and thus limit the ‘tax free’ benefit.
* Inheritance Tax Nil Rate Allowance
This is the tax free amount under which you can leave to your intended beneficiaries who survive you. Recent changes have made this a complex area in which gifts already made that were tax free could now be liable to tax on death.
* Enterprise Investment Schemes
You can claim Income Tax relief on contributions to qualifying schemes. If held for a number of years any gains are free of Capital Gains Tax.
* Venture Capital Trusts
You can claim Income Tax relief on contributions to qualifying schemes. If held for a number of years any dividends are free of Income Tax.
* Pension contributions
You can receive Income Tax relief up to your highest rate of tax on your savings by investing here. Click here to speak us to about how you can use your allowance.
And for Limited Companies:
* ‘Income shifting’
The mechanism where by you share your dividend income with a spouse who is a co-shareholder. This keeps many business owners from paying Income Tax at the highest rates. HMRC have this under review so click here to speak to us about how this might affect you now.
* Capital Allowances
This allows the offsetting of the cost of reinvesting profits back into your business through the purchase of ‘plant and machinery’. Click here to speak to us about how you can discover what qualifies.
* Entrepreneurs Relief
A new relief that allows you to sell your company for up to £1m whilst paying an effective rate of 10% in tax. Click here to speak to us about how you can qualify.