Rational Finance

Saving Tax

Most people prefer not to pay unnecessary tax. Although there are only three main UK taxes affecting individuals: Income Tax; Capital Gains Tax; Inheritance Tax; the UK tax system is extremely complex.

By pre-planning, and using a mix of investments to help you use all of your allowances, your tax can be reduced.


Income Tax

Each individual has a personal allowance (£10,600 in 2015/16) before paying income tax. However the rate at which you pay tax in (2015/16) can be 10%, 20%, 40%, 60%, 40%, 45%. For people with children and earning over £50,000 there is an effectively increased tax rate depending on how many children you have. The situation is likely to become more complex when the additional savings allowance is introduced and then even more complex when the additional dividend allowance is introduced.

Contributions to some investments (eg pensions) are classified as ‘tax reducers’ and contributions to some others (eg VCT, EIS) qualify for tax rebates.

The tapering of the annual allowance for increases in pension benefits is likely to affect people in defined contribution (final salary) pension schemes who earn more than £110,000 pa. Failure to notify HMRC if you are affected can lead to substantial fines and penalties.

Capital Gains Tax

Each individual has an exempt allowance (£11,100 in 2015/16) with tax on gains payable at 18% or 28% above this amount. With pre-planning this exemption can supplement the personal allowance and a couple could have a tax-free income of up to £43,400 pa.


Inheritance Tax

If, when you eventually die, you have an estate in excess of your available Nil Rate Band your family will be liable to pay tax on the excess before the balance of the estate can be distributed to your beneficiaries. This is often regarded as a voluntary tax as it can be legally avoided or reduced with specialist professional advice.

Most gifts of assets or capital remain in your estate for seven years which means that you need to survive for seven years from the date of the gift for it to be effective for tax purposes.

As specialists in this field we can help you to reduce your family's IHT liability by:-

  • maximizing the use of allowances
  • immediately removing capital from your estate whilst retaining access to an income.
  • removing capital from your estate after 7 years whilst retaining regular access to some of your capital.
  • removing capital from your estate after a two year period and retain access to the capital and income.
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