BEGINNERS GUIDE
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Tax returns
There are 11 days to go before the deadline for filing 2005/2006 tax returns and despite HMRC’s campaign there will always be those who leave sending in their forms until the last moment.
Charitable giving
The taxman shows a kindly streak when it comes to giving to charity. Money gifts receive 28 per cent extra from HM Revenue & Customs if you fill out a Gift Aid form. For every £100 you put in, the charity can claim back £28.20 of basic rate tax from the Revenue. Higher-rate taxpayers can reclaim a further £23.08 (ie 18 per cent of the gross donation of £128.20) on their tax return.
Maximising personal allowances
Knowing how to plan your finances to ensure that you are not paying unnecessary tax can be tricky. Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, says it is hard for people to gain a picture of what allowances are available to them and how they can utilise their particular circumstances.
Tax-free gifts
Earlier this year the government stamped out one of the most common ways to pass money to heirs when it introduced tax liabilities on certain types of trusts. The rules surrounding how much money you can donate to whom now need to be studied even more closely to make sure your family does not get stung for too high a charge when you die.
Potentially exempt transfers
A “Pet” is the act of giving away cash and assets to another person, or into some types of trust, in the hope of removing the value of these gifts from your estate. It’s a pressing problem, as IHT is paid at 40 per cent on everything in the estate on top of the nil-rate band (which is free of tax).
Capital Gains Tax
If you own assets which increase in value you may find yourself having to pay capital gains tax (CGT). CGT can apply to shares, unit trusts, land, property and antiques which can all increase in price. If you sell them – or even give them away – you may be faced with a tax bill of up to 40 per cent of the chargeable gain.
Inheritance tax
Inheritance tax (IHT) used to be known as the “voluntary tax” because if you planned ahead you could avoid it. But an increasing number of people are being caught in the IHT net because of the sharp increase in the value of their homes. Revenue & Customs took in £2.92bn in IHT last year compared with £1.68bn in 1997-1998. The IHT threshold has been lifted by 28 per cent over the past eight years while house prices have risen 142 per cent.
Wills
Most people like the security of knowing that their partner, children or other dependants will be well provided for when they die. Many also recoil at the idea of giving the taxman more money than is necessary. However, according to Will Aid, a charity will-making scheme, 75 per cent of people aged under 45, and half of all those aged over 45, have not made a will.
