Saving Tax – FAQs

The team at Thorne Widgery are here to help. If you’ve got a question about your business or personal finances, you can bet that one of our experts will have the answer.

Below are just a few of the most frequently asked questions we receive on the subject of saving tax but if you can’t find the answer to a query you have, just get in touch and we’ll be happy to help.

Q: Could I save tax by changing my business structure?

A: If you are trading as a sole trader, partnership or Limited Liability Partnership you could consider incorporation to a Limited Company as a more tax efficient business structure. There are pros and cons to the various types of structures available to UK businesses, so speak to our experts first and we can advise on the more appropriate and tax efficient option to meet your individual needs.

Q: Are there ways of reducing Dividend Tax?

A: Firstly, make sure you have utilised your zero per cent Dividend Tax Band of £2,000. You may also wish to consider payment of salaries to owner managers at tax efficient levels following the reduction of the Dividend Tax Band. We can help you minimise your dividend tax burden, ensuring you are paying no more tax than you need to.

Q: What are the rules relating to R&D tax credit and could my business be eligible?

A: Research & Development (R&D) projects are eligible for significant benefits, with HMRC allowing 130 per cent of identified costs to be written off against taxable profits – this equates to 33p in every pound spent on projects that have led to the creation new products, processes or services or modifying an existing product, process or service. Claims can even be made against innovations that resulted in a loss.

Q: How can I maximise my personal tax position?

A: If you are married, make sure you have maximised capital gains and income tax rates and allowances through Inter-spouse transfers For individuals whose annual income is between £100,001 and £125,000 this is an ideal way of reducing your tax liabilities.

Exchange your salary for benefits: Consider exchanging part of your salary for payments into an approved share scheme or additional pension contributions, to take you below the £100,000 threshold.

Dividends and bonuses: Have you considered paying these early, so that they fall into the current tax year? Equally, for individuals who receive relatively low levels of taxable dividend income, it might be worth deferring dividends

Q: I want to ensure that my hard earned assets are passed on to beneficiaries in the most tax efficient way possible. What’s the best way of doing this?

A:  Consider switching your assets: Inheritance Tax (IHT) must be paid on the value of any estate above £325,000. However certain assets including business and agricultural as well as shares in private trading companies may qualify for 100 per cent relief from IHT.

The Resident Nil Rate Band (RNRB) was introduced in 2017 and applies to a residence passed, on death, to a direct descendant. It is being introduced in stages

Since April 2020 the nil rate band is £325,000 plus RNRB of £175,000, – which, in total, provides an IHT allowance of £500,000 per person, so a married couple could have a £1million allowance.  Estates worth over £2 million will start to lose the RNRB, with it being withdrawn at a rate of £1 for every £2 over £2 million.

 

Consider making charitable and personal gifts: If you leave at least 10 per cent of your net estate to charity a reduced rate of 36 per cent rather than 40 per cent applies and could save your family money. Gifts to a spouse can be made now to use up his or her nil rate band and could help you to reduce the value of the part of your estate above the £325,000 band. Other gifts may be free of IHT but it is important to seek advice first.

Passing on your pension: If you have not already done so, you should revisit your current plans and update your Will to ensure that your family receives the full benefit of any remaining pension fund when you die.

Find out how we can help make your saving tax ambitions a reality – call us now for an informal chat.