Dorset financial expert, Peter Harding says, the UK’s tax system is famously complex. It means that for many people, tax represents much more of a threat than an opportunity, with pitfalls at every turn. From investing in a way that incurs much more tax than is necessary to making pension-income decisions without being aware of potentially expensive tax implications, even the most financially savvy among us can fall foul of the UK’s many tax rules and regulations.
The full list of errors to avoid and opportunities that shouldn’t be missed is a long one. But here are just some of the most common and costly tax traps to look out for.
Forgetting to share the load – Most tax allowances, exemptions and tax-efficient investment opportunities are available to each person in a couple. For example, if only one person in a couple has used up their ISA allowance for the current tax year, they can gift some money to their partner who has some or all of their allowance left. The same approach can be taken to each person’s annual Capital Gains Tax (CGT) allowance.
Leaving it to the last minute -Many of us are in the habit of paying attention to our allowances only at the start and/or end of each tax year. This can mean it may be too late to use them, especially Income Tax allowances and exemptions that can’t be carried forward.
Joining the tax-free cash rush- A common mistake among those reaching retirement and accessing their pension is to take all their tax-free cash in one go. It can be used as income in most Defined Contribution (DC) pension schemes to help reduce the Income Tax paid each year, so if you don’t need the lump sum to pay off something, then don’t take it all out. Also, if taken out and not spent, it can increase your Inheritance Tax (IHT) liability.
To receive a complimentary guide covering wealth management, retirement planning or inheritance tax planning, contact Peter Harding Wealth Management on 01202 830730 or email peterhardingwm@sjpp.co.uk
Peter Harding Wealth Management is a trading name of Peter Harding Practice Ltd.
This article is featured in the June issue of the Dorset Business Focus magazine. Read on the online version here.