Protect Your Assets for your Loved Ones Today – Check out these Advanced Inheritance Tax Planning Strategies

I think it’s time we walked about a topic we have put on hold for weeks. Today, I want you to picture what life will be for your loved ones when you are gone.

For many of my clients, inheritance tax planning is not something they are open to talking about. After all, it is hard to envision the outcome for your family upon death. However, today we will look at two strategies you can use to protect your family from financial backslides due to poor estate planning.

A few weeks ago, I had a guest over to talk about the basics of inheritance planning (use of wills and gifting). This week, you will be learning more about inheritance tax planning from our guest Mr. Aidan Dow of Aidan Dow Wealth Management.

Aidan talked about two main inheritance tax planning strategies you can pay attention to in order to secure your family’s future. They are:

  • Using Family Trusts

You may use family trusts to keep your estate within your family. With a trust in place, your beneficiaries have a legal standing to inherit your estate. You set up a trust and transfer assets. You then name your beneficiaries – those to whom your wealth will transfer – and trustees to enforce the conditions of the trust.

Trusts protect inherited property, as Aidan pointed out. One circumstance where having a trust matters is when you want to ensure the inheritance still passes to your children even with the remarriage and divorce of your surviving spouse.

  • Investing in Assets with Tax Benefits

If you are passionate about propagating small businesses and hold no fear for high-risk investment, this method of inheritance tax planning would be suitable for you, Aidan affirmed during our session.

Assets such as in-shares and venture capital trusts fall outside your estate when owned for more than two years. With such assets, you can save your beneficiaries from paying the 40% inheritance tax usually charged on property worth above £325,000.

So, the next time you are thinking about taking care of your loved ones with inheritance tax planning, remember these strategies. Additionally, consult with an expert to help you plan your estate the best way you can.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

What’s New on Public Sector IR35 2017-18?

A lot of doctors are working with the NHS as a locum doctor and IR35 has become a big issue to most doctors. It is nearly the anniversary of the public sector IR35 rule that kicked-in from April 17. Here we have provided the updated guidelines on the tax implications if you are inside IR35 and being paid to your Ltd company, the expenses claims and considerations of closing down a company.

Tax Treatment When You Are Inside IR35 and Being Paid to Ltd Company

A lot of locum doctors were deemed inside IR35, they still have active limited companies and being paid to the company bank account, but after tax/NI deducted as an employee. This caused a lot of confusion when it comes to corporation tax and income tax. And most importantly how one can avoid being taxed twice for the same income.

As the income inside IR35 were still technically ‘employment income’, you would declare this income under Self-Assessment, but you may not have additional tax liability on this income as taxes were already deducted.

When it comes to Ltd company corporation tax, the same gross income should be treated as the ‘revenue’ for the company. But equally, the same gross amount will be taken out as ‘director’s salary’ so that the income will not be taxed under corporation tax.

For example, Dr Rebecca being paid £6,000 gross per month, the tax/NI deducted was appx £1,500. That gives net amount of £4,500. Dr Rebecca would need to count the £6,000 as revenue, but £6,000 as ‘director’s salary’ which is ‘deductible expense’, so there’s no corporation tax charged on that income. And that income would declare the IR35 under her Self-Assessment.

Expenses Claims

If you still run an active company, any expenses that are necessary for the company are still tax deductible, e.g. your bookkeeping software or subscriptions. When you are doing any consultancy jobs that are outside of IR35, the expenditures that are directly related to those activities are still tax deductible.

When inside IR35, you may not claim travel and subsistence the same way as a self-employed individual. As you are technically an ‘employee’, you may only claim the travel to temporary workplace and that are necessary for you to perform your job. You may not claim travel from home to ‘clients’ office’ by justifying your home is your usual workplace, as those will be treated as usual work commute.

Company Strike Off Considerations

Some individuals might feel as though it is not worth to keep the company running and they just want to do the job, get paid and be tax efficient. In order to close down the company, the company has to be at least 3 months dormant. One thing to be aware of is the final assets of your company, if its less than £25,000 then you can do a normal strike off. Anything remaining will be counted as capital gain. If there is more than £25,000 you might need to use a liquidator to apply for members voluntary liquidation.

Summary

  • You would need to make sure you declare the income as employment income in your self-assessment.
  • Inside IR35, you are technically an employee, so any expenses related to the work that is inside IR35 you will claim the expenses as an employee.
  • You need to look at your long-term vision, if running a business is not your long-term vision then you would need to look at closing down the company.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Save Money This Year with Tax Breaks for Couples

It was Valentines Season, and as you celebrate with your significant other, I thought you could use a few pointers about how to make your status as a couple work for you – financially speaking. For this feature, couples will refer to married pairs (because marriage is recognized by the law).

Here are a few tips to help you put money aside for other household items.

How can I save money as a married spouse?

Under the current UK tax regulations, the following scenarios can result in tax breaks for married couples:

  1. Marriage Allowance

For couples in different tax brackets, marriage allowances present a great tax relief option. If you earn less than £11,500 and your partner falls within the £11,501-45,000 tax bracket, you can transfer 10% of your unused personal allowance to your partner. He/she will then be able to save up to £230 per annum.

  1. Sharing ownership of Buy to Let Property

Transferring ownership of a property between a married couple will incur no capital gains tax. This is what makes it a great tax relief strategy for couples. This strategy involves one spouse transferring shares of a property to the other. If your spouse earns lower income and pays tax at lower rate, this enables part of the property income being taxed at lower rate. However, the overall situations of both partners need to be assessed in order to determine whether or not this strategy is a good fit.

  1. Transfer of Business Ownership

If your partner makes a significant and legitimate strategic contribution and bringing him or her on board was part of your long-term business strategy, transferring shares of your business to them will help you save tax in the long term. Your business will enjoy the first £5,000 tax-free allowance, while the payment of dividends and salaries to you and your spouse will reduce the taxes owed by the business.

  1. Savings on Wedding Cost

This is a creative way for couples to save money through tax relief if they’re planning to get married. Donating valuable wedding decorations to your church, or a charity that is close to your heart, is considered as charitable donations and you can get tax relief from it. However, be aware of the limitations. For example, you will not get tax relief if the size of the donation is more than 4 times of the tax you’ve paid in previous year.

  1. Inheritance Tax

As a married couple, you and your spouse could double your nil rate band for inheritance tax purposes. What that means is that your inheritance value could go untaxed for up to £650,000 if your spouse did not utilize his/her inheritance tax.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

The Tax Season Highlight: 3 Reasons to Feel Positive About Taxes

As the taxing season comes to an end, I wanted to give you a few reasons not to dislike the taxation process.

A lot of my clients are doctors and majority of them have negative feelings about tax. I understand why there would be a lot of negative emotions surrounding taxation. We work hard five to seven days a week to get our paychecks, then have to hand over a chunk of our earnings to the government, or at least that is what it feels like. You are not alone if you share these feelings. However, I made this trip to your inbox to show you that negativity is not necessary when it comes to paying taxes. Below I have compiled a list of three tips to help you feel more motivated to participate in the tax process.

Here are the 3 tips that will help you feel more positive about paying tax

  1. Tax rules are there to help us pay less tax

Have you always thought that the taxes were too high? It turns out that it doesn’t have to be. If we look out for the taxation guidance, only a small portion of the information is about how the Government collects taxes. There’s more information showing a multitude of tax reliefs including exemptions, allowances, and deductibles that you can file for to optimize your tax bill. All you have to do is take advantage of them. Seek out a professional and assess which provisions apply to you. I do this for my clients so that they can minimize their tax expenditure.

  1. Look on the profitable side

I was so excited the first time I paid my corporate tax. I know this sounds absurd, but it’s true. And do you know why? It’s because having to pay corporate tax meant that I was doing good and my business was profitable. If I owned a struggling firm, I wouldn’t have to cater to pay taxes. So (Name), the next time you feel like taxation is a burden, look on the positive side: at least your business is healthy.

  1. Money you pay into the system is still YOURS

The taxes you give to the government are still yours. Here’s why. That tax money you pay is what goes into funding free public healthcare so that you pay little or next to nothing when you visit a public hospital. It funds the public education for your kids or those of your friends and family as well as the pension and unemployment benefits that you may enjoy one day. Ultimately, the taxes you pay benefit you too.

I hope you have enjoyed this wrapping-up-the-tax-season session. Remember that loving the Tax Man comes down to one key element – looking on the bright side, which I hope you will.

Don’t forget to follow me on Facebook for more tips on how to discover your ability to create wealth next week!

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

How Not to Forget to Pay Yourself

One of the most important factors of building wealth of any kind is to start paying yourself. It does not matter the amount that you pay, even if it is a small amount, the most vital part is that it will accumulate over time. In Tony Robbins, ‘Money Master the Game’, it mentions the power of compounding where it explains that time can actually make a small amount accumulate so that when you get to retirement age you will have a healthy pension retirement fund. It also tells us that it is very important to start paying ourselves no matter what the income level is. Some people may question the fact that they will be living on paycheque by paycheque but the point is that you should not wait until you are earning over a certain amount before you start paying yourself. As long as you are receiving an income, you should pay yourself and then eventually start to think about planning and paying your bills etc.

In this article, we will be breaking the whole process down into a couple of steps in order to make things clear on how you can pay yourself and how you can make the idea of paying yourself more fun and positive.

Be Clear with Your Value and Objective

First of all, in order to not forget to pay yourself you will need to prioritise your needs. You cannot neglect your needs and then think about paying yourself. If you do not know what you need and if you do not prioritise your own needs then it is very hard to make things easy. You need to decide how much you need to pay your bills, groceries etc. You will also need to consider the other aspects that are important to you because if you are living under a certain budget then you cannot have a lot of luxury things. You need to decide on what you value the most. For example, if you value going out that is completely fine but you would need to let go of what is not important in order to fund the parts of your life that are the most important to you. Always know your value, know what you need and be clear on why you need that extra money.

Set Income Goal

After you have decided what you need the extra money for and why, you can start to set an income goal. It does not matter whether you are self-employed or employed, you are always able to set an income goal. If something is really important to you, you will always find the extra money. When people state they cannot afford something what it really shows is that they do not want to do whatever it takes to pay for that or they choose not to buy that. Instead of saying you cannot afford something you should start to ask yourself how can you make it affordable and then set some income goals.

If you are self-employed, you might want to work backwards and figure out how much you need to fulfil your needs and the things you value the most. You are then able to work out your bare minimum and how much you have to earn as a minimum for that particular month in order to support yourself. If you are on a fixed-contract or if you are an employee, you can still set some goals based on how much you actually need in order to support the lifestyle you really want. You might want to consider negotiating a pay rise or sell some unused items from your home to create some income.

Put a % of Income Aside First

Whenever you have a pay cheque, you need to make sure you put a small percentage aside for your long term financial future. You should not wait to pay yourself after you have paid for the expenses and there is a bit of money left over. It will not work this way, you need to make sure you pay yourself first before anything else.

When you have a business, you need to use the same concept. Whenever a customer or client pay you, you need to put aside a small percentage first and then use the rest to pay bills or expenses. If you find out you do not have enough money to fund your expenses it does not mean you have to borrow from yourself, it just means you need to re-think your current strategy. You have to strategize your business to make sure you are making extra income or figure out if there are any expenses that you can save for the time being.

This concept works for personal finance too. If you are an employee, when you receive your net pay, you can put a small percentage into your pension pot. This is a very tax efficient approach because every £80 you pay in; the government will put £20 on top and for a higher rate tax payer the government will top up even more. Paying your pension means you will get 25% return and no other investment can be as good as that.

You can also consider putting money into an ISA which will allow you to earn some tax-free interest. If you have an investment ISA or if you sell the shares then all the dividends you get from your ISA wrapper is tax-free as well.

Tax Efficiency

When you are a business owner, especially a limited company, once you decide how much money you need to fund your lifestyle it is important to go through everything with your tax advisor or accountant. You need to make sure you are extracting money in a tax-efficient way and doing it properly because when you have a limited company you cannot randomly withdraw money. You can either have a salary or dividends but you would need to work out which option is the most tax-efficient. If you have a home-based business, there are certain expenses you can claim as a business expense and you can let your company pay for it. An example of a type of business expense is use of home, which means that if you are working from home a portion of your bills will be paid for by your business.

If you are self-employed, there is no restriction. Whatever you earn, you can use as long as you have sufficient funds to pay all of your expenses as well as your tax bill. There are certain strategies as mentioned that you can use such as pension contribution and the ISA wrapper.

If you are earning really good profit but for some reason you cannot incorporate as a company it is best to consider taking more advanced advice on things like Venture Capital Trust investment which will give you good tax relief as well. Every £10,000 you invest will give you back £3,000. However, please note that this type of investment is very risky as it involves funding start-up businesses and it is likely that they will fail. If they succeed you will get tax-free dividends.

If you are running a profitable business from a limited company, you can think about retaining some money. You do not need to extract the money if you already have enough to fulfil your needs. Business can sometimes slow down, it is always ideal if you have money to have it in a vault account. You can also set up investment funds under the company name in order to keep the cash in there and get some return.

If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please direct message the author of this article so we can arrange a chat.