Do you want to keep more of what you earn? Of course you do!
Personal tax planning helps us do just that. It’s not just about meeting HMRC requirements – it’s about making informed choices to manage your money efficiently and plan for the future.
A well-thought-out tax plan can help you take control of your financial future, ensuring that more of your hard-earned cash stays in your pocket – and not the taxman’s.
So, What Is Personal Tax Planning?
Personal tax planning means arranging your income, savings, and investments in a way that helps lower your tax bill. You can avoid paying more tax than necessary by using the right allowances and reliefs!
Whether your income is high or low, good tax planning is an important part of managing your finances. Even small adjustments to your financial habits can have a significant impact over time, helping you make the most of your income and investments.
Practical Tax Planning Strategies
Here are a few simple ways to lower your tax bill:
Using Tax-Free Accounts
A simple way to reduce tax is by using tax-free accounts like ISAs (Individual Savings Accounts). Any interest, dividends, or capital gains earned within an ISA are free from tax, allowing your savings to potentially grow faster.
If you’re a high earner and can take a higher risk investment approach with your money, Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) provide tax benefits for investing in smaller companies. These schemes can be useful for experienced investors looking to diversify their portfolios while gaining tax advantages.
Additionally, Junior ISAs can be a great way to save for children in a tax-efficient manner, allowing funds to grow tax-free until they reach adulthood.
Charitable Donations
Giving to charity can reduce your tax bill while supporting causes you care about – its a win-win! Through Gift Aid, charities receive an extra percentage on top of your donation, and if you’re a higher or additional rate taxpayer, you can claim back some tax too. Thoughtful giving can also help keep your taxable income below certain thresholds, which could help you retain personal allowances or reduce higher-rate tax liabilities.
Additionally, leaving a portion of your estate to charity in your will can reduce inheritance tax liability. Charitable bequests can lower the overall taxable value of your estate, meaning more of your wealth goes to the people and causes that matter most to you.
Making the Most of Allowances
The UK tax system provides a range of allowances to help reduce tax liability.
These could be:
- Personal Allowance
- Savings Allowance
- Dividend Allowance
- Capital Gains Tax (CGT) Allowance.
By spreading income and investments – perhaps between you and a spouse (teamwork makes the dream work) – you can use these allowances to cut your tax bill
For example, transferring assets to a lower-earning spouse can help make better use of unused allowances and lower the overall household tax burden. Just make sure to do this before the tax year ends in April.
Pension Contributions
Paying into a pension is one way to save for retirement while reducing your taxable income. Contributions up to the annual allowance receive tax relief, meaning money that would have gone to tax goes into your pension instead. This is particularly beneficial for higher-rate and additional-rate taxpayers, as the government basically boosts contributions through tax relief.
If your employer offers a pension scheme, contributing more – especially through salary sacrifice – can boost your savings while lowering your taxable income. If you haven’t used all of your pension allowances from previous years, you may be able to carry forward unused allowances and receive additional tax relief.
It’s also worth considering pension contributions if you are approaching the threshold for child benefit withdrawal or the higher-rate tax band. Making additional contributions could reduce your adjusted net income, allowing you to retain more of your benefits and lower your tax rate.
Tax Planning Matters!
Planning your tax affairs properly can bring you a whole host of benefits:
- Lower Tax Bills: Use allowances and reliefs to keep more of your money.
- Better Budgeting: Knowing your tax obligations helps with financial planning.
- More Savings and Investments: Efficient tax management means more opportunities for growth.
- Less Stress: Staying organised helps you avoid unexpected bills and penalties.
- Greater Financial Security: Small tax-efficient changes today can lead to a stronger financial position in the future.
Final Thoughts
You don’t need to be an accountant or a finance whizz to benefit from tax planning. Regularly reviewing your finances, using tax-free allowances, and contributing to pensions can all make a difference. By taking small but meaningful steps, you can ensure your tax affairs are in order while making the most of your income and investments.
For tailored advice, speaking to a financial expert can help you make the best choices for your situation. Taking small steps now can lead to long-term financial security and a more comfortable future. Who wouldn’t want that?
Information is based on our understanding of current legislation, regulation and taxation which are subject to change and depend on individual circumstances.
Investing puts capital at risk, you may receive less than what you put in.
