This week started with Facebook getting into trouble because the corporation tax paid by its UK subsidiary, £4,327, is less than the £5,393 income tax and national insurance paid by a single person on the average wage.
Nobody is suggesting that Facebook has done anything illegal. So what can a UK-resident taxpayer do to reduce their tax bill while staying within the law? Quite a lot, actually. Here are a few possibilities…
Married couples and registered civil partners should review the ownership of income-producing assets, such as portfolio investments, rental property, bank accounts or private company shares, and seek advice on how ownership can be varied so that income can be shared to the best post-tax effect.
Capital gains tax
A review of asset ownership between couples can help reduce capital gains tax liabilities. Effective use of the annual exemption, currently £11,100, including splitting disposals over two tax years, could save up to £12,376 in tax. Other tax reliefs may be available to increase the savings.
It is almost impossible to undertake inheritance tax planning shortly before death. Taking action early, and having a plan for the distribution for assets or maximising the very generous reliefs, could mean that inheritance tax is fully mitigated and the next generation can benefit from the full value of an estate.
Do not be deterred by the continual changes in the pensions regime. Tax relief is obtained at your marginal income tax rate on contributions up to an annual allowance, plus any unused relief available from the three previous years. Pensions are a useful succession tool and there is a definite incentive to maximise contributions. Those approaching retirement may even consider bank borrowing to achieve this.
Generous tax reliefs are available for saving via the individual savings account (ISA) and investment in private companies via a range of schemes.
Gift aid donations
Gift aid remains a valuable tax relief, on amounts donated to qualifying charities, for donors paying income tax at 40 per cent or more.
The gulf between personal and corporate tax rates has made companies attractive for holding personal assets. Investment wrappers can be used to hold assets which might otherwise be held personally, such as investment portfolios and property, to ensure you retain and grow family wealth. Types of investment wrapper include UK companies, trusts, offshore investment bonds and open-ended investment companies. Suitability will depend on longer-term aims, objectives and family circumstances.
Now for the health warning…
The detailed rules surrounding each of these are complicated so you shouldn’t act on any of them without taking appropriate professional advice.
In fact, the list goes on and on. While tax reliefs won’t convert taxable income to a tax loss, and many are subject to their own financial limits, taking time to review your personal circumstances, your wider family objectives and considering how the taxman can help you achieve those objectives in a tax-efficient way will be time-well spent. You won’t become Facebook but, because these are all tried and tested ideas, you won’t find yourself at the centre of a media storm either.