DO YOU WANT TO PAY LESS INCOME TAX?
Successful Entrepreneurs and Wealthy Property investors are constantly looking for ways in which they can increase their income. However, when they do so they cause themselves income tax issues.
The aim for our income tax planning is to ensure that we think ahead and put structures into place that can help mitigate income tax – whilst still allowing access to funds for ‘living’.
There are numerous tax schemes that are touted as legal and above board – some people even call them HMRC approved. Sadly there is no such thing as “HMRC Approved’. There are only accepted HMRC practices when applying the legislation. Even these can change!
Many clients want to take the maximum level of income, even if they do not need it for paying regular expenses. It does not make sense to force yourself to pay additional income tax, unless you NEED the money to pay for regular ongoing costs or to help pass the ‘affordability’ checks when applying for a loan or mortgage.
When personal income exceeds £150,000 there are all kinds of negative effects – such as the erosion of personal allowances and restrictions on pension contributions.
Instead of taxable income, it is possible to make use of capital transactions, short-term annuities and tax exempt income.
By having a strategy that combines these all it is possible to ensure the minimum exposure to income tax.
Here are some examples:
If investments are held within a QNUPS, the HMRC rules allow for access to a certain amount of the QNUPS value to be paid as ‘tax free cash’ from the age of 55.
Another option might be to sell the personally held shares in a LTD Company to trigger a capital gains tax liability (of 10%). This is a lot lower than the rates of income tax, so a saving can be made. Special care needs to be taken so as not to trigger HMRC’s anti-avoidance rules which do not allow you to ‘pretend’ that a regular payment is ‘captial’ instead of ‘income’.
However selling an asset and having some of the sale price payable in the future as a ‘deferred consideration’ is acceptable.
So if you were to sell your entire share holding to your own tax exempt structure for £1m – but the structure only had £500,000 available, it would be perfectly acceptable for payments to be split and the final £500,000 to be paid out in the future as ‘tax already paid’.
Using tax exempt structures to buy assets allows your ‘income’ to be reduced while you use the capital to live on. Once an asset is inside the structure, any future sale is tax free – but that is covered in the Capital Gains Tax post!
Other rarely used structures like short-term annuities allow for income to be paid out over 3 years. HMRC’s own rules state that this ‘income’ is taxed at 0%. Having a series of these will ensure that every 3 years you begin again with tax at 0%.
With income tax planning the aim is to begin putting the long-term strategy into place as soon as possible, so as to minimise not only the income tax payable, but also capital gains tax when selling or moving assets around.
There is nothing stopping a wealthy entrepreneur from managing their affairs so that there is very little income tax payable on their investments, even large property portfolios.
Most Advisors, such as IFA’s and Accountants do not have the internal experts to assess a client’s FULL situation – and come up with the best overall strategy.
As I have worked in the tax planning field for over 30 years, I have personal access to experts in all taxes and can combine these experts into a unique service that really does go beyond what you’d get from your normal ‘Advisors’.
Every wealthy entrepreneur or property investor I have ever met had their own Accountant, Solicitor and Financial Advisor – yet in 90% of cases we were able to dramatically able to improve their overall exposure to UK taxes.
What is vital is the proper implementation – with care at every stage.
This is why we offer a FREE consultation – as it lets us explore the current situation before jumping in with ‘solutions’.
If you are interested in reducing your current and/or future income tax exposure, do not hesitate to call or email us now.
Paul Stewart – Specialist Tax Advisor Links: