In the fiscal year 2022 to 2023, the United Kingdom collectively paid a substantial £788.8 billion in taxes, reflecting a notable increase of 10.2 percent compared to the previous year. It’s important to note that this figure encompasses various forms of taxation, including income tax, inheritance tax, dividend tax, and capital gains tax.
Paying more in taxes than necessary is something most individuals and businesses aim to avoid. However, the complexities of the UK tax system often leave people with limited time and bandwidth to navigate its intricacies effectively.
One effective strategy for mitigating excessive tax payments is to ensure that assets are structured in a tax-efficient manner. By doing so, individuals and businesses can optimize their financial arrangements to minimise tax liabilities and pay their fair share.
Some potential moves to consider include:
ISA allowances
There’s no UK income tax or capital gains tax on investments inside an ISA so they’re one of the most tax-efficient ways to save. Options include Cash ISA, Stocks and Shares ISA and Innovative Finance ISA.
Adults living in the UK can invest up to £20,000 in ISAs in the 2023/24 tax year. Those with children can invest up to £9,000 on their behalf in a Junior ISA (JISA) which has the same tax benefits as an adult ISA.
Consider putting more into a pension
Adding money to a pension is one of the most tax-efficient ways to bolster long-term financial security and can also reduce the amount of income tax paid.
This is because personal pension contributions lower ‘adjusted net income’ which HMRC uses to work out tax bills.
Don’t forget, that the money will be locked away in a pension until the age of 55, or 57 from April 2028.
Divide assets
A higher-rate taxpayer may be well-advised to transfer taxable savings and investments into their spouse’s name if they earn less.
Tax allowances effectively double for those who are married or in a civil partnership. If both open an ISA, that is a potential combined £40,000 protected from income tax and capital gains tax each year.
Speak to an expert
Remember that tax laws can change and what works best for each individual situation may vary.
Regularly reviewing your financial situation with a tax professional can ensure tax savings are tailored to specific circumstances.
Here at Rawlence & Browne we have Tax experts you can speak to for excellent advice!
