Follow our guide
to paying less tax!
The 2002/03 Tax Returns have now arrived and the first
self-assessment deadline looms on the horizon. If
you have received yours, now is the time to take action.
If you leave it too late, you could eventually face
penalties and an automatic £100 fine, which may be
boosted by an additional penal interest charge and
could even lead to a tax investigation.
So bite the bullet and deal with your self-assessment
form sooner rather than later. The first deadline
is 30 September 2003, followed by 31 January 2004.
Taxing facts
Knowledge is power when you have to deal with the
Inland Revenue. Here are ten tax facts that explain
how you could plan more tax-efficiently. See if you
should be taking advantage of any of these tax saving
methods.
*
Individual Savings Accounts (ISAs)
allow you to invest up to £7,000 a year in a tax-efficient
wrapper. Have you fully utilised this year's allowance?
Within certain limits you can make investments in
cash (at the low-risk end of the scale), insurance
or stocks and shares (at the higher-risk end). All
proceeds taken are exempt from personal taxation.
*
If you are a non-taxpayer, you
can claim back tax on interest received from bank
or building society accounts. To receive interest
gross in the future you will need to complete Inland
Revenue form R40. If you are a taxpayer, consider
transferring your savings accounts to non-taxpaying
spouses.
*
If you have made significant investment
gains over previous years, it is important to utilise
your annual capital gains tax (CGT) exemption. For
the 2003/04 tax year, this exemption is £7,900, and
any disposals made within this figure would be exempt
from CGT. However, gains made on top of that could
be taxed at your highest rate tax.
*When
was the last time that you considered your inheritance
tax (IHT) planning requirements? This tax is charged
on a deceased person's estate worth more than £255,000
(2003/04). It is charged at 40% of the total value
of your assets over and above this threshold. Tax
may also be payable on transfers of assets made in
a person's lifetime, although gifts usually made more
than seven years before a death are exempt.
*
You are allowed to transfer £3,000
per annum (gifting allowance) each year to other people
without paying inheritance tax. Is it appropriate
for you to make a transfer now? You can carry this
allowance forward to the next year if you have not
used it up in the current year. No IHT is paid on
transfers between married couples or on gifts to charities.
Any gifts you make within seven years of your death
and in excess of the threshold could be subject to
IHT.
*
Have you made a will and when was it last updated?
It's vital that you do so, as a will can become a
crucial weapon when fending off the taxman. Also,
if you don't make a will, you won't be able to take
advantage of certain tax-exempt options, such as leaving
money to charity.
*
Are you fully funding your pension?
Amounts paid into approved personal pension funds
can receive tax relief at your highest rate. We can
advise you on your appropriate funding levels.
*
If your attitude towards investment
risk is at the higher end of the spectrum, then a
Venture Capital Trust (VCT) could offer you many attractive
tax benefits. A VCT can be useful if you need to defer
any CGT you owe, as you can transfer gains made within
the period running from 12 months before the gain
is made and 12 months after to a new issue of shares
in a VCT. No CGT is paid until these shares are sold.
You can also receive income tax relief at up to 20%
on up to £100,000 of your investment each tax year
in new VCT shares. Dividends from VCT shares within
the annual £100,000 subscription limit are also tax-free
and there is no CGT to pay on any gains made within
the trust.
*
An Enterprise Investment Scheme
(EIS) offers tax relief at up to 20% and tax deferral
in much the same way as a VCT, but has a higher total
upper subscription limit of £150,000 per tax year.
An EIS invests in a single business, in contrast to
a VCT, which invests in many companies.
*
Investing your money offshore in a tax haven can be
efficient as interest is paid without deduction of
tax, which could be a benefit if you do not pay tax
or wish to benefit from gross roll up of interest.
You must remember, however, that if you are UK resident
and domiciled you must declare the interest (whether
distributed or rolled up) to the Inland Revenue as
it arises and pay tax on it in the normal way. If
you are non - UK domiciled you will only pay tax when
you decide to bring the cash back onshore. Certain
offshore investments (called "roll-up" funds) allow
you to roll up your profits so you can choose when
to encash and pay tax. In this way, you can delay
being hit with tax until, for example, you are in
a lower tax bracket or you retire. You could even
avoid paying UK tax altogether if you choose to retire
abroad and then encash. Is this an option that you
are considering?
To find out how you could potentially reduce the
amount of tax that you pay or to discuss a more tax-efficient
investment approach, whether for now or in the future,
please e-mail or contact us for further information.
Bank
and building society accounts, National Savings, Cash
Components of ISAs, taxation advice, some offshore
investments and will writing are not authorised by
the Financial Services Authority. VCTs and EISs are
not suitable for all investors and you should always
seek advice before entering into such plans.
Article date August
2003
|
