As Benjamin Franklin said over 200 years ago, “nothing is certain except death and taxes”. The good news is death and taxes may be certain, but there are things you can do to mitigate both.

We’re not going to give you health advice - other than to take what you read in the press about taxes with a pinch of salt (but not too big) - and with all the noise in the run up to the first Budget announcement under the new government, we thought now would be a good time to consider what you can do to be tax efficient.

Cash savings

With interest rates rising, many people are now finding that they have may have tax to pay on their savings income. For higher rate taxpayers, you can earn £500 of interest before it becomes taxable.

Three considerations for maximising your cash savings and minimising the taxation are:

• Use your ISA allowances (£20,000 per person), growth and interest are tax free.
• Couples should consider who will pay least tax on the interest and accounts can be held jointly or in sole names to retain the most interest and use both persons Personal Savings Allowances.
• Consider premium bonds from NS&I. They pay prizes, not interest and prizes are tax free.

Pensions

Do you make personal contributions to a pension? If you are a higher rate taxpayer you need to claim back some of your tax relief, which many don’t! A Standard Life article in 2023 quoted the figure was as high as £1.3 billion over a 5-year period. If you need to reclaim the tax relief due, you do so by completing a self-assessment tax return or writing to your local tax office.

For higher rate taxpayers, making pension contributions remains a very tax efficient method of saving and, for almost all, will be the most efficient way to save.

The more tax you pay or the closer you are to retirement; your pension could be your best tool available and with annual allowances of up to £60,000, sizeable contributions can be made.

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell an asset that has increased in value. Currently the tax rates levied are 10% for a basic rate taxpayer and 20% for a higher rate taxpayer with an additional charge to 18% (basic rate) and 24% (higher rate) on the sale of property. The tax is charged on the gain over the annual allowance of £3,000.

If you find yourself with significant gains, some options that should be considered are:

• Could some of the assets be transferred to a spouse before realising? This would allow the spouse to use their annual allowance and depending on their income, the tax due could be lower. There is no tax on assets given to a spouse.
• Realise gains to utilise the annual allowance over several years and make further disposals in years when you are a basic rate taxpayer.
• Make a pension contribution to allow a Capital Gain to fall into the Basic Rate Band.

Realised monies could then be moved into ISAs to ensure that future growth is free from Capital Gains Tax.

Should you have fully used up your pension and ISA allowances, there are other options such as Investment Bonds that may reduce the immediate tax burden to 20% or potential nil. There are also alternative tax efficient investments available such as Venture Capital Trusts and Enterprise Investment Schemes that come with various reliefs such as a 30% Income Tax Relief. These types of alternative investments are high risk, and you should discuss your capacity for loss, and the appropriateness of these investments, with your Financial Planner in detail prior to investing.

One thing that is certain, whether it is changes in your circumstances or changes in legislation, how to be tax efficient is a constantly changing dynamic and having a Financial Planner to guide and support you will keep you on the best and most efficient path.

If you would like to discuss this further, please don't hesitate to get in touch with your Johnston Carmichael Wealth Financial Planner or use the short form below to be put in touch with a member of our team.

Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority.

This article is based on our understanding of tax legislation as at 04/10/2024. The benefit of any reliefs or allowances will depend upon your own situation. This communication should not be read as financial advice. While all possible care is taken in the completion of this article, no responsibility for loss occasioned by any person acting or refraining from action as a result of the information contained herein can be accepted by this firm.

All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices both of which are subject to change in the future. Levels and bases of reliefs from taxation are also subject to change and are dependent on your individual circumstances.