The UK has one of the most complex and opaque tax codes in the world – it costs more than £11billion just to operate it (that’s equivalent to nearly £180 for every man, woman and child – simply to collect it). Compared to your home or your pension, tax can easily be your biggest single cost. It’s taken from your earnings, your investments, and ultimately, your estate.
Over their lifetime (and even on their death) most people will pay significantly more tax than they need to. Even simple tax-saving actions are regularly ignored or done late. Using allowances at the earliest opportunity each year would amount to a significant tax saving over time. But it’s complicated.
The UK tax system resembles a Heath Robinson creation. It’s been bashed, bodged and hammered by each successive government, trying to grab as much as they dare, often by stealth and apathy. There’s little wonder we end up paying more than we should. One of the benefits of on-going financial planning is that we help people use the tax system more efficiently.
Our clients for example are encouraged to transfer investments from taxed accounts into their Individual Savings Account (ISA) at the beginning of the tax year, avoid the usual end of tax year rush, and enjoying a whole year of tax efficiency. It’s a simple thing, but it works.
We consider how the pension rules can be used to save tax more effectively, particularly for people who earn enough to see their personal allowances cut.
We also work alongside our client’s solicitor and accountant to provide a cohesive approach to managing their wealth in a tax efficient way. And with your professional advisers working together, it allows you to relax and enjoy life more.
“Nothing is certain but death and taxes”
The above phrase is attributed to Benjamin Franklin who was of course one of the founding fathers of the United States and a renowned polymath. Clearly a very wise man, this phrase has been aired on many occasions by tax planners and advisers.
When it comes to taxes such as Income tax, Capital Gains tax or Inheritance tax it makes sense to try and ensure that you are not paying more in tax than your fair share. The tax rules are complex and impact on every aspect of your personal financial plan as well as your business interests. Furthermore, the rules, reliefs and allowances are always potentially subject to change in the main spring Budget or the Chancellor’s Autumn Statement which means that it is sometimes difficult to keep pace with the current legislative structure.
Tax planning is the implementation of a financial strategy designed to make use of all the legitimate reliefs and allowances, to reduce your tax bill to the minimum level and ensure that these efficiencies complement your overall financial plan and objectives.
Blackstone Financial Management Ltd have assisted clients for many years, in conjunction with their other professional advisers, in the planning and execution of efficient tax strategies to augment the overall effectiveness of their financial plans and ensure that financial objectives are achieved. There are a number of specialist financial products that can assist hugely in the reduction of Income tax, Capital Gains tax and Inheritance tax.
Trusts are very useful tools, but if not used correctly they can cause more harm than good. A poorly constructed trust could mean having to pay more tax than the trust saves. Or you could even lose access to your funds, as could the beneficiaries! This is an area where expert advice from a specialist could be worth its weight in gold.
When employed correctly, the right trust can be a very powerful IHT mitigation vehicle. Discounted Gift Trusts for example can provide you with an income, and immediately reduce your IHT liabilities, plus all future investment growth falls outside of your estate for tax purposes.
Other types of trust we may utilise include gift and loan trusts, where you lend money to a trust that is gradually repaid and that also provides you with a form of income should you require it. Again, any investment growth in this kind of trust will not be subject to IHT.
In terms of trusts, the simplest solutions are often the best, which is why a straightforward gift trust is usually a key element in IHT planning.
It is vitally important that the trust is the correct type for your circumstances. Although some trusts are more ‘flexible’ than others, they could prove ineffective if the amounts gifted are above the allowances. Absolute trusts on the other hand, are more tax-efficient but less flexible. By carefully combining the two options, it’s possible to gift on a flexible and totally tax-efficient basis.