Tax planning has never been one of the most exciting topics – even if you are an accountant, which I’m not. But that doesn’t mean that you should move it to your ‘round tuit’ pile and not consider it further.
The goal of most people is to pay the taxes that they legally (and ethically) should, whilst not paying more than is necessary. To do this properly and not risk being thought of as ‘evading’ tax, you should take some proper advice – and not from Dave down the pub, who is an expert on everything after 4 pints of lager.
If you are self-employed, you may have an accountant or tax adviser who will help you in many ways, but your Financial Adviser should also be playing a key part in this, through the service that they offer to you as standard. Offering you advice on tax-efficient strategies to building your wealth should be something that they do on an on-going basis.
1. Overpayments on residential / buy-to-let mortgages.
If you have both a residential, and one or more buy-to-let mortgages you should take care as to which you overpay, or repay early. Some mortgage payments are tax-deductible, and this is changing over the next few years depending on your income bracket. Some mortgages have exit penalties and there are ways to avoid these by staggering payments.
Pension contributions qualify for tax relief at your marginal (highest) tax rate. This means that as a higher rate (40%) tax payer every £1000 you put in gets boosted by HMRC to £1666. That’s £666 FREE money, and you can still pay into a pension even if you have a company scheme – subject to certain annual and lifetime allowances. It all depends on your current income, how much income you think you’ll need in retirement, and the value of any existing pots.
3. Inheritance Tax
There are lots of considerations here, and lots can be done dependent on your circumstances. It might involve setting up protection policies in trust, to ensure speedy payments free of IHT, or use of other investment products such as bonds – but could simply mean making sure that your Will is valid and up to date.
Looking at your situation as a whole, and making a recommendation that is personalised to you, and explained in a way you can understand is what you should expect from your adviser. Then you can confidently recommend them to your friends and family, knowing that they will be looked after in the best possible way.