Tax planning and advice for individuals

Personal tax planning involves making sure that you complete your self-assessment accurately and avoid any HMRC penalties. It also makes sure that you only pay the tax you are legally obliged to while bringing to your attention any allowances, reliefs and expenses that you can claim. People will also look for tax advice as they approach a change in life, such as a new job with a complex benefits package, a relationship breakdown or the entry into or exit from a business. While tax is rarely the deciding factor in a key life decision, the decision is always made easier if the plan of action has been accurately costed, or if a better way of organising your affairs emerges from an analysis of the options.

Individuals in receipt of just employment income and investment income within the allowances may be able get by without tax planning for most of their lives. There will come a point, however, when they will have to think about estate planning, in which tax will invariably play a part. Anyone with growing rental or business income would be sensible to seek professional advice on the scope of what they can claim as expenses and whether there might be a more advantageous way of structuring their enterprise. If your life pattern has a foreign element, in terms of your residence, domicile or asset allocation, tax planning is likely to be a practical necessity.

If you have to file tax returns, you must pay your tax not later than 31 January following the end of the tax year in question. You may also have to make payments on account of your income tax, the first by 31 January before and the second by 31 July after the end of the relevant tax year. You can be relieved of this obligation if certain numerical tests are met, e.g. if at least a certain proportion of your income tax, as assessed for the year, has already been collected at source.

Your income tax is calculated on your taxable income after allowances, principally your personal allowance, if you are entitled to one. Your personal allowance may be adjusted for a variety of reasons and, if you receive a salary or pension, the relevant PAYE code should reflect these adjustments. Income in excess of your personal allowance is taxed according to a system of marginal rates, the current top rates being 38.1% for dividends and 45% for other income sources.

For 2021/22, you have an annual exemption of £12,300, representing the net amount of capital gains you can realise on the disposal of chargeable assets before tax becomes payable. Any excess, after the offset of allowable losses, is taxable at the rate of 10% or 20% depending on your marginal rate of income tax. Special rates of 18% and 28% apply to gains on residential property that has not always been your main residence and carried interest. Some assets are not chargeable, such as chattels, government gilts and foreign currency movements within bank accounts.

In general, inheritance tax (IHT) is paid by the personal representatives of a person who has died. An individual may need to pay IHT personally if they received a gift in the seven years before the donor’s death. IHT will not usually be payable if your net estate is less than the nil rate band of £325,000 or you leave any excess to your spouse or civil partner, or to charity. The unused portions of the nil rate band and, if available, the residence nil rate band are transferable between spouses and civil partners. Some classes of assets can fall outside the charge to IHT, such as interests in a business or a farm, but the rules are intricate and the reliefs may be curtailed by future legislation.