May 18, 2012
-- There are a number of tax allowances granted to you by the Government. You have a personal income tax allowance, an annual exemption from capital gains tax and there are numerous tax credits available depending on your circumstances. Schemes like Gift Aid also offer relief, if you make donations to a charity. And you have an Inheritance Tax (IHT) allowance for when your estate is passed on.
On top of these there are also tax efficient investment products, such as Individual Savings Accounts and pensions. These are the straightforward ones and give you relief from both income and capital gains tax (CGT) to different extents. Other more complex or higher risk investments can extend the level of relief, depending on your situation.
In addition, some individual assets that you own are also specifically exempt from CGT even if they are sold at a profit. Typically, these include your home, your car, certain personal jewellery, antiques and UK Government bonds (gilts). In addition, there are ways to mitigate CGT, such as giving away assets to your spouse.
For the 2012/13 tax year, your Inheritance Tax (IHT) allowance is £325,000 (this has the potential to rise to up to £650,000 for married couples and civil partners, if the unused portion of someone’s allowance passes to their spouse on their death), but anything you leave in your estate that takes the total above this amount will leave a liability. This can result in beneficiaries having to sell family heirlooms to pay the tax bill. However, a little bit of planning can help you access the range of annual exemptions and allowances which are available in advance. This can help you reduce the liability – or provide the means with which your beneficiaries can pay it without having to sell items of sentimental value.
For most people, using your tax allowances could simply be a matter of adjusting your portfolio to maximise use of the various allowances and savings products. For others, the process is more complex. A professional adviser can help you through the maze and help you find the best set of solutions for your personal needs.
Paul Dixon FPFS
Chartered Financial Planner