1. Aim to die poor.
if you’ve a high income, from a pension or investments, you may as well give away any of it you don’t use. You can also give away assets IHT free as long as you live for seven years after making the gift. For the first seven years what you have given away will count as ‘potentially exempt transfers’ (PET) and be subject to IHT if you die, but after that they won’t be the taxman’s business. A word of warning: you can’t give something away, continue to make use of it and still call it a PET. So if you give a house away, you can’t keep living in it and if you give a holiday cottage away, you can’t keep holidaying in it unless you pay commercial rents to the new owners.
2. Give to your grandchildren via a bare trust.
If you want to give a large gift to a minor as a PET, you can do so via a bare trust so they can’t get their hands on it until they are 18. Until then, any money in the trust is treated as the child’s for tax purposes, as far as income tax and capital gain allowances are concerned, with one proviso: if the money came initially from the parents’ income, above £100 will be treated as theirs for tax purposes.
3. Turn your capital into income.
You can give away any income you aren’t spending with impunity, but you can’t give away capital as easily, so you should therefore shift your asset mix to change one into the other, choosing high-income, lowcapital- return assets over the opposite, or even using an equity-release product of some kind to make your house produce income. But note that the sums on this may not add up. The home-reversion market is famously uncompetitive – even if you are in your mid 70s you may find you’ll only get paid 45% of the value of your home. If so, you could be better off paying IHT at 40%.
4. Make a will.
If you don’t, you can’t guarantee the tax-effective distribution of your assets. The key, if you can afford to do so, is to leave an amount up to the nil rate band to someone other than your spouse and the rest to your spouse (there is no IHT payable on assets left to a spouse). You will then have removed £285,000 from risk completely and when your spouse dies she/he will be able to use the nil-rate band again, hence doubling the total tax-free amount you leave.
5. Understand deeds of variation.
If your spouse dies without arranging the above, you can – assuming all beneficiaries agree use a deed of variation to change the terms of the will and take advantage of the chance to use the nil-rate band twice
6. Go non-dom.
If you can get the status, you can in practice help them avoid paying tax on anything but earnings sourced in the UK . So how do you do it? The key is to prove you have “severed ties” with the UK. If you have close relations in the UK, if you belong to a UK-based club of any kind, or if you leave too many assets in the UK, you might have trouble. Note that at the end of last year, British-born but Seychelles-based Robert Gaines-Cooper was judged to be too attached to the UK to be a non-dom (he was a member of the Rolls-Royce Owners Club). He now faces a bill for thousands of pounds in back taxes. Still, if you can manage it (it is easier if you have a foreign-born parent, or were born abroad), there are huge advantages to being a nondom.Your overseas assets will not be subject to IHT or capital gains tax and your overseas income won’t be assessable for UK income tax. But if you do change your domicile, don’t get too comfortable: a review is “ongoing”.
7. Change your residency.
This is easier than going non-dom, as all you need to do is move to another county. As long as you live outside the UK and don’t return for more than 90 days a year on average over a four-year period, or more than 183 days in any one tax year, it is straightforward. If you live outside the UK like this for five years, you will not have to pay capital gains tax on UK investments. If you are non resident for three years, you won’t have to pay income tax on overseas income and if you move your money into an offshore bank account, you can then avoid paying income tax on it as it will no longer count as UK-sourced income. One thing to bear in mind is that the rules on what counts as part of your 90 days is no longer completely clear. It used to be that the travelling day did not count (so people could come in on a Monday and leave on a Wednesday, but only be deemed to have spent one day in the UK), but a recent ruling suggests that it is not days that count but nights. The result? That Monday to Wednesday trip suddenly takes up two days instead of one.
8. Use Gift Aid.
Where the scheme applies, the charity is entitled to reclaim a rebate worth 28p for every pound given to it by an individual. Higher-rate taxpayers can then reclaim the rest via their tax returns.
9. Get an occasional lodger.
You can take in up to £4,250 in rent without having to pay any income tax on it.
10. Use your Isa allowance to the full.
The Isa limit has been raised to £10,600.
11. Shift your assets around inside a marriage or civil partnership to make the most of allowances.
The CGT regime has been changed to allow a married couple or civil partners to transfer allowances between them.
12. Claim back tax if you aren’t supposed to be a taxpayer.
Every year, £546m worth of allowances go begging and much of thisis due to non-taxpayers not claiming back basic-rate tax withheld from savings accounts.
13. Understand tax credits and claim if you can.
There’s a total of £2.3bn up for grabs. If you paid some of it into the pot, you might as well get as much as you can back.
14. Get childcare vouchers.
Not all employers offer a voucher scheme, but if yours does, you should use it. It works like this. Instead of taking £55 of your salary in your pay cheque each week, you take it as a voucher exchangeable for childcare with registered nurseries, nannies and childminders. This might sound pointless, but here’s the good bit: the voucher is given to you pretax, so you end up paying no tax at all on that £55. In total, basic-rate taxpayers can save a total of £858 a year in tax and higher-rate taxpayers can save £1,066 a year. Note that both parents can claim the relief, so if you’re both working, you can save a total of £2,132 a year. This is currently about the closest you can get to free money.
15. Cut your national insurance bill with salary sacrifice.
You give up some of your wage, hence removing it from the national-insurance net. Your employer then pays it directly into your pension fund.
16. Make sure you have the right tax code.
Most of us assume that between them the Inland Revenue and our employers are capable of assigning us the correct code. In fact, one in five of us is paying the wrong amount of tax, thanks to having the wrong code. You can check your code at Direct.gov.uk.
17. Make good use of your pension.
We’d recommend pension saving via a self-invested personal pension simply because they allow you to invest in whatever you like (funds, bonds, shares, and even cash). You can also use your SIPP to crystallise capital gains while still holding on to a stock.