Taxing questions

picture of tax forms

Most of us risk being taxed on our income, our capital gains and the value of our estate when we die. It is worth getting a clear grasp of how these taxes work and then discussing with your financial adviser the most tax efficient financial planning for you.

Income tax

The single person's income tax allowance for the year 2012/2013 is 8,105 (2011/2012 - 7,475). If your total income is less than this during the tax year, you have no tax to pay.

If you are on an income of less than 8,105 (2012/2013), your bank or building society can provide you with Inland Revenue form R85 to apply for your interest to be paid gross.

Income tax bands 2011-2013

Rate

20012-2013 Band

2011-2012 Band

Basic rate: 20%

0 - £34,370

0 - £35,000

Higher rate: 40%

34,371 - £150,000

35,001 - £150,000

Additional rate: 50%

Over £150,000

Over £150,000

 

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.

Don't forget pension payments either. You may be able to pay further contributions to your pension, which can soak up some unused tax relief.

One other point to remember, if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching some investments to take advantage of their unused tax allowances.

Capital gains tax

In the tax year 2012/2013 an individual has a CGT allowance of 10,600 (11/12 10,600).

This means that you do not have to pay tax on gains from buying and selling shares or other investments during the tax year up to that amount. Remember also that you do not normally have to pay tax on any gain you make when you sell your main residence.

If you have used your CGT allowance, don't forget your ISA allowance. A "stocks and shares ISA" can shelter capital gains and dividends on investments, for example shares, worth up to £11,280 per year.

Inheritance tax

Inheritance tax is hanging over more and more of us each year. This is largely due to the rise in residential property values. The IHT threshold is frozen at 325,000 until 5 April 2015, many people are still getting caught in the trap of property inheritance tax. Depending on the value of your house and other assets this may not be that big an allowance. If you die leaving an estate worth more than £325,000 and you have no spouse your estate will come in for IHT at 40% on the balance.

Even if you do have a spouse to inherit then this only puts off the time when tax will be payable because he or she will also pass away one day. It is worth doing some forward planning with a tax adviser to decide whether it would be appropriate to gift some of your estate, perhaps to children or other relatives, during your lifetime; or possibly redirect assets up to the value of the nil rate band into a trust on death.

The nil rate band is effectively transferable between husband and wife such that where one spouse has died with a chargeable estate for IHT of less than the nil rate band at the time, the unused proportion will be added to the nil rate band of the surviving spouse on the second death.

One thing is for sure with all forms of tax; if you do nothing the government will use its considerable powers to make sure a share of your hard earned wealth ends up in their coffers.

For further information about the 2012 Budget changes please click here.

Levels, and bases of, and reliefs from taxation are subject to change.

Contact Asset Wealth Management LLP for further information

Asset Wealth Management LLP
ASSET WEALTH MANAGEMENT LLP IS A LIMITED LIABILITY PARTNERSHIP

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Mandeep Basra
Amardip Kaur Basra
Asset Wealth Management LLP is Authorised and Regulated by the Financial Conduct Authority.
Asset Wealth Management LLP is entered on the Financial Services Register (www.fsa.gov.uk/register/) under reference 226032
Taxation