The autumn Budget is still several months away, however, that's not to say that some won't be making preparations in case of changes in taxation. I
The autumn Budget is still several months away, however, that’s not to say that some won’t be making preparations in case of changes in taxation. It’s something which Shona Lowe, Private Client & Corporate Director, 1825, has addressed this week.
“Importantly, this is about being tax efficient and operating within the rules and spirit of the tax legislation to pay the right amount of tax – this is not about tax evasion or avoidance.”
Ms Lowe went on to highlight a number of taxes which offer forms of reliefs, exemptions and allowances, and pointed out how these could have an impact.
“Reliefs, exemptions and allowances are across income tax, capital gains tax and inheritance tax in particular and effective use of them can make a real difference to how much tax you have to pay, and how much money you have to enjoy or share,” she said.
“Asset sharing is something we‘re seeing increased interest in as families look to distribute money to where it is needed most during what are for many very financially challenging times.”
Financial planning is something many will do for a whole host of reasons.
However, according to Ms Lowe, there may be reasons to prepare for tax rises at the present time.
“There’s no crystal ball but the overall train of direction indicates certain tax rates will increase or reliefs will be reduced,” she said.
“That makes it more important than ever to make use of current tax rates and rules.
“This could be maximising the use of your personal allowance, ensuring you are making use of allowances such as the savings and dividend allowance, making all appropriate deductions from rent received before declaring the net amount for tax purposes, crystallising capital gains to make use of the annual exempt amount and making use of current IHT exemptions such as the annual allowance, regular gifting from income and potentially exempt transfers.
“Being tax efficient is also about being tax compliant so making sure you are properly reporting your affairs to HMRC through your self-assessment is vital if you want confidence you are paying the right amount of tax and avoiding interest and penalties.”
How much is Income Tax?
The amount of Income Tax – the tax paid on taxable income – that a person pays in a tax year depends on how much of their income is above their Personal Allowance, and how much of their income falls within each tax band.
Additionally, there are some forms of income which are tax-free.
The standard Personal Allowance is currently £12,500, however some people may have a different Personal Allowance.
For instance, those who claim Marriage Allowance or Blind Person’s Allowance may see their Personal Allowance change.
And, the Personal Allowance decreases if a person’s income is more than £100,000.
In the UK, Income Tax rates and divided into bands, with taxable income in the Personal Allowance band being charged at a tax rate of zero percent.
The basic rate band covers taxable income of £12,501 to £50,000.
Any taxable income in this bracket is subject to a 20 percent tax rate.
Higher rate taxpayers face a 40 percent charge on any taxable income between £50,001 to £150,000.
Taxable income of more than £150,000 falls into the Additional rate band, and this is subject to a 45 percent tax rate.
However, the bands are different if a person lives in Scotland.