Tax allowances and shelters
Rishi Sunak's family tax affairs are dominating news headlines, so what's the deal with tax allowances and shelters?
· There are legal and ethical ways to help retain more of your money and assets, but as some are time sensitive, please don’t miss out due to your attention being elsewhere.
· The right name, ownership and tax shelter in which you hold your assets and liabilities can help you retain more of your wealth at these challenging times – and they are not just for super wealthy people!
For many the Spring Forecast will mean less spending power in real terms. There are, however, defences to use to balance that feeling of loss you might feel when the reality of these tax changes hits your pay packet in April.
Please remember there are a range of tax allowances and shelters which are legally and ethically available for you to use today. You do not need to be a celebrity or politician using complex offshore tax havens and schemes!
Simply put, if an asset (or liability) is not ‘held’ correctly it can mean losing money unnecessarily to the taxman and reducing returns. Get the tax status wrong by accident and the tax charges are double digits (10%, 20%, 40%, or even 52%!) – and this impacts the ‘average’ person in the street, not just the super wealthy!
The starting point is to ask the question, “because of any Spring Forecast changes, are you and/or your partner’s hard-earned savings, investments and assets impacted by way of:
· Welfare benefits,
· The amount held in you or your partner’s savings, investments and assets, and
· The tax treatment on any profit / gains on savings, investments and assets?”
Three sense checks:
1. Right name?
In this context, ‘right name’ means, is the asset held in the right name at the time the asset is to be needed and distributed? This could be as simple as ensuring:
· You and your partner’s tax codes are correct and are being applied accurately,
· Your cash / money on deposit in bank accounts is spilt between you and your partner to ensure you are allocating the interest received by making best use of your personal allowances, and
· You and your partner are making pension contributions to the right person’s pension fund to claim the tax relief now, but not lose money by paying too much tax when either of you take your pension.
Have you placed you and your partner’s savings, investments, and assets under an appropriate trust to:
· Pay the right money to the right person or charity at the right time,
· Avoiding time consuming wait for probate, and
· Not lose money by paying too much inheritance tax, legally and ethically?
Are you and your partner’s savings, investments and assets held in single names, jointly owned or (and please forgive the jargon), cross proposed? You and your partner could be missing out on making use of your joint allowances, where they are applicable.
3. Tax Shelter
Are you and your partner’s savings, investments and assets in the right tax shelter allowing you to:
· Reclaim tax back that you are owed – for example on pension contributions,
· Save tax on the future growth of your asset – for example an ISA, and
· Defer tax until you want to access or spend the asset when your tax position and the taxation on the asset may be less than it is today?
The above might seem complicated and often people only get the full job, half done. This is where a professionally qualified adviser can help make sure you do not miss out on the financial planning opportunities which exist.
What may have been right last year may not be now due to the Spring Forecast, so please take time out and check.