This year was marked with a number of changes introduced into the tax system. While not overly extensive, their impact on allowances and benefits needs to be simplified. The reason is that with the tax filing dates coming near, it is important to know about the tax structure and how it affects the income of individuals and businesses.
Based on the changes, earnings can be deferred accordingly to stave off any side effect from a high tax rate. The personal allowance for people who are under the age of 65 has been increased to £9,440, from the previous amount of £8,105.
Also, for the first time, personal allowance has been frozen at a limit of £10,500 for people aged 65 to 74, while it is £10,660 for those 75 and above.
Income tax and thresholds
The income threshold before being a 40% taxpayer has been changed from £42,475 to £41,450. The tax rate has been cut for additional rate payers, and stands at 45% from a previous 50% on income of more than £150,000. A similar approach has been applied on dividend income, which has been cut to 37.5% from the previous rate of 42.5%.
With regards to the capital gains tax, the rate has been adjusted between 18% and 28% depending on the income. The threshold for the capital gains tax has been increased from £10,600 to £10,900.
Different businesses and individuals can evolve strategies to reduce the tax bite. Unlimited and limited companies are looking to implement strategies so that they are able to limit the tax rates before Dec. 31. This is important with respect to earnings, market gains and stakes.
A lot of manoeuvring is needed to be done among mutual fund holdings, donations and retirement accounts to dilute the impact.
Alternatively, enterprises and individuals can also file taxes online, the benefit of which is multi-fold. In such cases, the taxation liability is reduced and businesses can be routinely updated on how tax updates would affect the overall taxation structure. Furthermore, digital records of taxes are easily transferable to other sectors of the enterprise for improvement.
Another avenue of managing the high taxes is through the interests in S corporations and also via flow through entities. This would dilute the effect of the 3.8% tax levied on investment income. In targeting the S corporations and flow through entities: the more active they are, the lesser will be the impact of high taxes.
Contributions to tax advantaged retirement plans is another substitute for high earners. It would help realize losses to offset the capital gains. In order to maximise the controlling strategy, it is also recommended that income be deferred by investing in privately controlled life insurance and private annuities.
Apart from the changes that would affect tax filings for the current year, there are certain more in the pipelines. The most important of them is the capital gains tax for overseas buyers. This taxation is the brainchild of Chancellor George Osborne and is expected to contain the real estate prices. The current tax is levied only on UK citizens.
Overseas investors or firms within the UK who are managing overseas assets should keep this in mind.
Keeping the above provided data in mind, it is not only possible to file taxes as per current knowledge, but individuals and businesses can also follow a cost effective solution against over taxing.