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How to lawfully stop the taxman getting his hands on your cash

Doug Blanchard
Doug Blanchard

Celebrities including Gabby Logan and Gary Barlow have been caught up in tax controversies this year. Doug Blanchard, a financial planner at Acumen Financial Planning in Aberdeen, gives some ideas for keeping the tax man’s hands off your cash.

A UK Government crackdown on tax avoidance saw it raise a record £23.9billion in extra revenue in the year to March.

Financial planning – the mechanism for avoiding tax legitimately – can help to redress the balance.

Firstly, use your personal income tax allowance. Everyone can earn £10,000 a year without paying tax.

If you are married,make sure you hold income-bearing assets as tax-efficiently as possible, for example by transferring them into the name of a non-working spouse.

Pensions are among the most tax advantageous of vehicles, so consider building up a pension pot for your partner as well as making contributions to your own retirement savings.

These attract tax relief at your highest marginal rate and contributions of up to £3,600 per year (£2,880 net) can be made irrespective of the level of earnings.

You could also consider helping children or grandchildren save for their retirement.

From next April, pension assets will be completely accessible from age 55, subject to your rate of income tax at the time.

Making pension contributions is particularly effective for those who find themselves dragged into higher tax bands – a sinister phenomenon known as fiscal drag.

For every £2 of income earned over £100,000 you lose £1 of your personal allowance. Those who earn £120,000 lose £10,000 of tax-free income, and effectively have a marginal rate of tax of 60%.

Boosting your pension contributions can reduce your taxable earnings to below the £100,000 threshold.

Although the maximum annual pension contribution allowance is £40,000, you can use unused annual allowances going back three tax years.

Making charitable donations can also help to preserve your personal allowance.

Individual savings accounts (ISAs) offer another valuable tax break. The limit for the new ISA, or NISA, which came into force on July 1 is an annual £15,000. If you have more than this to stash away each year, think about gifting any surplus into a NISA in the name of your spouse or civil partner.

An often forgotten tax allowance is capital gains tax (CGT). Everyone has an annual CGT allowance of £11,000 every tax year.

Finally, make a financial plan. Good forward planning can maximise the success of any financial planning strategy.

Doug Blanchard can be contacted on 01224 392350.