As each new year begins, it seems that time speeds up, and before we know it, it is time to file our taxes once again. We really don’t think much about taxes until it’s time to do all the paperwork and filing, but we should be thinking about them throughout the year. Here are some top tips for things you should be considering throughout the year to ensure everything goes smoothly next April:
Tax Rate: First things first, make sure you are paying an appropriate tax rate. In some situations, you might want to transfer assets to your spouse or partner, or protect your personal allowance by increasing pension contributions or donations to charity. Determine whether your investments are held in the most appropriate manners each year based on all the changes in taxation that occur frequently. It is also very important to keep accurate records of all of your income and earnings in the unfortunate event of an enquiry.
Property Ownership: This year, purchasing investment properties and second homes will result in a 3% increase in the Stamp Duty Land Tax. If a property is used as the owner’s only residence, or main residence, any gain on disposal is exempt from the Capital Gains Tax. Married couples can only have one exempt residence between them. If you rent out furnished property, the current 10% wear-and-tear tax deduction will be replaced with tax relief for the costs of furnishing replacement.
Capital Gains Tax: There are many different things to consider regarding Capital Gains Tax. It’s important to remember that you can claim capital losses to help offset any gains in the current year or future tax years. If you’re an entrepreneur, there is an additional entrepreneur’s relief deduction. You can also give an asset to a spouse or partner as a gift without suffering a tax liability.
Pensions: The annual allowance for tax-deductible pension savings has been the same for a couple of years, but for individuals earning a certain amount, that will change. Make the most of annual contributions if you earn more than that threshold amount. The lifetime allowance is being reduced slightly, so be sure to consider your overall contributions as well. There are various protections you can file for if necessary.
Tax Efficient Investments: There are several tax efficient investments provided by the state including National Savings, Social Investment Tax Relief, Venture Capital Trusts, and others. They all have annual limits, but any gains incurred on these investments and loans may be exempt from the Capital Gains Tax.
Inheritance Tax: In most cases, a 40% inheritance tax is paid on the value of an estate when someone dies, less any exemptions. It is important to plan for this throughout your life in order to reduce the inheritance tax by reviewing regularly. Be sure to meet any conditions for available exemptions to help offset the tax.
Hopefully you will begin considering some of these points now and will have a plan put into place when it comes time to file your taxes next year. There are many other parts to the year-end tax review so it is usually best to work with a professional to ensure all of your affairs are in order.