Top 3 UK tax FAQs

Tax is a crucial part of financial planning. Taking advantage of the numerous tax reliefs and allowances not only means you don’t pay more than you need to, but it can also go a long way towards helping you achieve your financial goals.

But UK tax can be confusing at times, too. To help you get a better understanding of the system, here are our answers to your top three tax queries.

Q) When I sell my buy-to-let, how can I make sure I do so as tax effectively as possible?

A) “For lots of clients who aren’t sure when to sell, there’s a balancing act between paying Capital Gains Tax now or leaving an Inheritance Tax (IHT) liability when they die,” says Simon Martin, Chartered Financial Planner at Technical Connection. “, Quite often, it’s better to pay CGT at 18% or 28% than IHT at 40% down the line.”

What’s right for you, though, will depend on your circumstances, so it’s important to talk your options through with us. “There are lots of knock-on consequences to consider,” adds Simon. “For example, will you need to replace lost income if you sell now?”

Q) How can I reduce my Inheritance Tax liability?

A) Inheritance Tax is currently payable at a rate of 40% on estates worth more than £325,000, but if you’re passing on your home to your children or grandchildren and your estate is worth less than £2 million, this is increased to £500,000. Transfers between spouses are free of IHT, meaning a married couple with a home can pass on £1 million tax free.

Despite these allowances, around one in 25 estates still pay the tax.¹ “There are lots of ways you can reduce an IHT liability,” says Simon, “for example, by gifting, with trusts or insuring your liability with a whole-of-life insurance policy.”

What works best for you will depend on your circumstances. We can come up with a plan that mitigates your loved ones’ future tax bill, without leaving you short during your lifetime. “It’s also a good opportunity to talk about intergenerational financial planning,” adds Simon. This can involve working out how you can both help support younger generations and control how and when your wealth is distributed.

Q) How can I make sure I’m using all my tax breaks and allowances?

A) The UK tax system features a host of tax-free allowances that can limit the amount of tax you pay on everything from your income to your capital gains and the money you leave behind when you die.

By structuring your income and your investments in the right way, it’s possible to legally reduce the amount of tax you pay. It can be complicated, though, particularly if you have accumulated substantial capital or have multiple income sources.

Talk to us about our UKHealth Check. This is a simple online tool that asks you a series of questions and creates a report that will show you if you’re missing out on any reliefs or allowances that could make your finances more tax efficient while living as an expat in Asia. Additionally, it can identify gaps in your estate planning, and if you are aware of the range of retirement options available to you, so you can make smarter retirement decisions.

The value of an Investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.

Trusts are not regulated by the Financial Conduct Authority.

Sources:

¹Inheritance Tax Statistics: Commentary, HM Revenue & Customs, July 2022