Guide to tax

For individuals, there are three main taxes to consider:

Income tax   Capital gains tax   Inheritance tax   Self assessment

When planning for your financial future, it is important to understand the characteristics of each type of tax so that you can structure your finances in a tax-efficient way and understand tax implications of certain types of investments.

We are unable to provide specific tax advice, however, we do work closely with accountants who are able to provide bespoke tax advice.

The Financial Conduct Authority does not regulate taxation and trust advice

 

Income tax

Tax is payable on the amount of your income (earned and unearned) less allowances. Everyone is given a personal allowance on which no tax is payable.

This allowance increases at age 65 and again at age 75. Married couples – allowance only applies where at least one partner was born before 6 April 1935.

You need to be clear as to how your investments affect your tax position. For example if the level of your income falls below the total of your allowances, investments could be made in areas where gross returns are obtainable, or at least where tax is recoverable.

Independent Taxation

The earnings and investment income of a husband and wife are taxed separately at their individual rates, so that a wife?s investment income is taxed at her own rate without regard to her husband?s. Careful thought needs to be given, therefore, as to the name in which investments are made. If investments are held jointly, they are normally deemed to be held on a 50/50 basis.

 

Capital gains tax

When is CGT payable?

You may have to pay CGT if, for example, you:

You don't have to pay CGT on:

These are some points to bear in mind:

How is CGT worked out?

CGT is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account:

With effect from 6th April 2016 two new rates of capital gains tax were introduced. For basic rate tax payers, a rate of 10% and for higher rate tax payers a rate of 20%. The annual exempt amount for 2020/21 £12,000.

Business assets enjoy particularly favourable relief - reference should be made to an accountant for full details. Broadly speaking gains arising on the disposal of certain business will qualify for an effective rate of CGT of 10% (2020/21).

 

Inheritance tax

When you die your chargeable estate is valued. This is basically the value of property and investments, less any debts, and excluding certain exempt assets (such as assets left to your spouse, charity or approved national causes).

Tax is then levied on any sum in excess of the IHT exemption which is usually amended at each Budget. From 9 October 2007 it has been possible to add the proportion of unused nil-rate band from the first death to the surviving spouse or civil partner's own nil-rate band when they die.

This can effectively double the current allowance where one nil rate band would otherwise have been wasted.

The 2007 Pre Budget Report introduced with immediate effect the concept of a "transferable nil rate band"; strictly speaking - the transfer of the unused proportion of the nil rate band of the first of a married couple or civil partners to die and the application of that unused proportion to the nil rate band in force on the death of the survivor.

The executors for the estate of the surviving spouse may therefore have use of a combined nil rate band up to a maximum figure of £325,000 per person (2020/21).

The Government passed legislation which led to the introduction of a new Main Residence Nil rate band in 2017. This will increase personal IHT allowance on an individual’s main residence by £175,000 by 2021. This allowance is in addition to the normal rates and only applies to the family home.

Potentially exempt transfers are gifts that do not give rise to an immediate liability, but which carry an underlying charge to tax that crystallises if the transferor dies within seven years of making the gift. If you survive for the full seven years, no tax is payable. Most lifetime transfers to individuals (not covered by the annual IHT exemptions) are potentially exempt. You should plan to use all of the available exemptions before making this type of gift.

The impact of Inheritance Tax can be reduced significantly with careful planning and by the careful construction of a Will. Wardour Partners will be pleased to advise you. You may want to request our Guide to Inheritance Tax.

 

Self assessment

The Inland Revenue usually dispatches self-assessment forms immediately following the end of the tax year to be assessed.

There is, however, a lot to be said for submitting a paper return before the 30th October - this will guarantee the completion of the tax calculations by the Inland Revenue and will give you the option of having small tax underpayments collected through PAYE coding adjustments.

Do not leave everything to the last minute, if you miss the final filing deadline of 31st January following the end of the tax year, you will leave yourself open to interest, penalties and surcharges.

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