Reducing your tax liability is an integral part of our advisory process. However, paying tax on our income and wealth is the price we pay for living in a civilised society, but it should not mean that we pay more than our fair share. Whatever your feelings about how your tax money is spent, there are still ways in which you can reduce the amount that is taken. It is important to treat the following as an overview only, and you should seek advice before taking action as we cannot and do not accept any liability for the content of our site.
It is very important to realise that tax evasion is a criminal offence and you can be sent to jail. However, tax avoidance is perfectly legal, and in fact John Maynard Keynes said 'The avoidance of taxes is the only intellectual pursuit that still carries any reward.' John Maynard Keynes - Economist
To pay tax on death from wealth created out of income that has already been taxed is probably one tax too far for most people. With careful planning there is no reason why your estate should pay this tax. There are ways of making gifts whilst still having access to capital and or income. There are also some allowances that you can claim, but you must keep records. The Inland Revenue have become very strict in this area and will not allow deductions unless your executors can provide proof.
The hardest asset to avoid IHT on is your main residence. If you gift it to others and continue to live in the property you must pay them the full rental value of the property, otherwise it will be classed as a gift with reservation and fall back inside your estate. Of course if you do pay the rent, then it will come from your net income and the recipient will also have to declare it, and be assessed for income tax accordingly. Unfortunately it does not stop there as it then becomes an investment property and falls inside the capital gains tax arena.
As we each have a personal allowance before tax is payable, you should always make sure that you organise your affairs so that you maximise this allowance. If you work for yourself then you should always employ an accountant and they should advise you of ways you can reduce your tax liability. If you are receiving income on your investments, then you may be able to use your spouse's allowance if they are below the starting threshold for paying tax.
This is another tax that with careful planning you can at least reduce the amount you will have to pay. You do not pay tax on the first £10,900 (tax year 2013/14) of any increase in the value between the date you purchased the asset and the day that you sold it. There are also expenses that you can deduct from the calculation, also do not forget that if you own it individually you can use your spouse's allowance as well. However, it is important to do things in the right order, or you can end up paying more tax that you need to.
With investments it is essential that you use the allowance every year as you cannot carry it forward to another tax year. it is very much a case of use it or lose it.