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How to Tax Plan for the Financial Year End

Every taxpayer wants to minimise their tax burden where they can, so they can save money for the things that really matter. The 2020-2021 tax year is coming to an end on the 5th April –  and with it, brings an opportunity for businesses and individuals to strategically plan to reduce the amount of tax they have to pay. 

At TurnerWarran, we believe that individuals and small businesses should never pay more tax than they have to: which is why our team of experts have come together to answer the important questions around Tax Planning – including what it is, who can benefit from it, and how.

QuickBooks shown on a laptop

What is Tax Planning?

Tax planning is using a range of reliefs available to reduce a person’s tax liability in a legitimate way –  and most people can benefit from some form of tax planning. For businesses, this involves looking at their financial situation and coming up with strategies that can maximise the value of the business, whilst minimising tax. 

For individuals, this can mean planning for a lower tax bill for you and your family, and preserving wealth. The aim is to reduce the overall liability for things such as capital gains tax, income tax, and other taxes on your savings, investments, assets and pensions.

Can I benefit from Tax Planning?

As our very own office manager and chartered ACA accountant Keith Hunt explains:

“Tax planning is the methodology employed by a good accountant to minimise someone’s exposure to tax – and everyone can benefit from it. You don’t have to be running a business or be an active investor to be able to benefit from good tax planning advice.”

By working together, an accountant and their client can ensure finances and assets are strategically managed in the most tax efficient way possible. 

Tax Planning for Income Tax

Tax planning can reduce the amount of income tax you have to pay, by using tax reliefs and allowances effectively – such as Capital Investments, or Pension Payments.

Certain tax planning techniques for individuals can help reduce the exposure to income tax at the higher rates. This could mean using unused allowances from spouses – for example, a marriage allowance transfer, or making personal pensions contributions.

Without tax planning properly an individual can be exposed to suffering too much tax at the higher rates. Through techniques employed by an accountant such as TurnerWarran, this can be prevented.

Tax Planning for Capital Gains Tax

It’s common knowledge among accountants that you can easily pay too much Capital Gains Tax – but with proper planning and procedures put in place, this can be prevented. 

For businesses, by utilising available reliefs such as Entrepreneurs Relief, or Incorporation Relief, you can prevent paying too much, and you can also adopt various tactics to reduce someone’s exposure to the Targeted Anti Avoidance Rule (or TAAR). 

For individuals, the amount of Capital Gains Tax paid can also be minimised by potentially transferring assets to a spouse or civil partner – so that both annual Capital Gains allowances are used. As with planning for income tax on individuals, making personal pension contributions could also reduce the rate of tax you have to pay from 20% to 10%.

Tax Planning for Inheritance Tax

The standard Inheritance Tax rate is 40%, and it’s only charged on the part of your estate that’s above the £325,000 threshold. By ensuring that a person’s estate is tax planned effectively, the exposure to the inheritance tax limit will be reduced.

A person’s estate could end up paying far too much tax in the event of their death without Tax Planning, through using efficient vehicles such as gifting. We remind all of our clients that it’s incredibly important to have a will, especially if there are young children involved in your family life.

An individual can also utilise the nil rate band to decrease Inheritance Tax payments. The nil rate band occurs when someone dies, and allows legally an amount of their Estate (everything they owned) to be passed on free of tax. If someone does not use this allowance in their lifetime, it can be transferred to their spouse or civil partner when they die.

Ways to Use Tax-Efficient Investments

Individually, there are also ways of making tax-efficient investments that can bring your tax down.

As Alice Lawson, our TurnerWarran accountant states “Using ISAs will allow individuals to earn interest on their savings tax free, although there are limits on the amounts you can put in an ISA in any tax year.”

There are a range of tax reliefs you can also tap into as a business to be tax efficient. As Kevin Turner, our managing partner here at TurnerWarran advises – these can be through Seed Enterprise Investment Schemes (SEIS), or Enterprise Investment Relief (EIS).

If you’d like the advice and guidance of any of our team, get in contact with us on 01652 650112.

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