For anyone in business, good tax planning is crucial to ensure you don’t pay any unnecessary tax and to prepare for your family’s future. Nadeem reveals his golden rules of tax planning.
1. Get the basics right
Make sure that you are utilising all the relevant allowances, relief and exemptions which are available to both you and your spouse. This might be simply to avoid going into the next, higher rate of income tax, or to look at Capital Gains Tax exemptions. For company owners there is often plenty of flexibility available in this respect given the flexibility with payments of dividends. The introduction of the 50 per cent tax rate in recent years further emphasizes the need for advance planning. Make sure you continue to satisfy the rules for the more favourable tax reliefs such as Entrepreneurs Relief and Business Property Relief. One often overlooked area is to make sure you have an up to date will. The very process of updating a will focuses the mind on areas of inheritance and tax planning that might otherwise be overlooked.
2. Get the timing right
This is not just about deadlines – getting tax returns submitted on time – but also about making the most of your situation. The ability to defer income or capital gains into a later tax year should be considered. In many situations, the next best thing after tax avoidance is tax deferment.
Ensure that available reliefs are secured by making payments before the end of the tax year. Pension contributions and charitable gifts are the more obvious reliefs to consider.
3. Tax efficient investments
As we approach the tax year end, ensure advantage is taken of ISA allowances and pension contribution opportunities. Priority should be given to discussing investment strategies with one’s financial adviser. Do the investments take advantage of available capital gains exemptions? Is unnecessary income tax being suffered on investments? Are investments Inheritance Tax friendly?
4. Identify medium and long-term goals
In order to identify the opportunities for tax planning it is critical to understand one’s objectives in the medium and longer terms. These would not simply be restricted to financial goals but also business and family related plans. It is generally inadvisable to rely on last minute quick fixes. An understanding of these issues may highlight that the business structure needs changing and the need to consider succession or sale planning. Should actions be taken to minimise business risks? Will there be sufficient income in retirement? What provision needs to be made to help future generations? Often the best tax advice is part of a holistic review of an individual’s plans. As with all aspects of tax planning, it’s better to start the process sooner rather than later.
5. Review and update
Hold regular reviews with your professional advisers. A good rule of thumb is that there should be at least one discussion before the tax year end, and wills should be reviewed every two to three years.