Four Top Tax Tips for High Earners
We can all learn from these ...
POSTED BY JONATHAN VOWLES ON 04/07/2017 @ 8:00AM
Nobody likes paying too much tax. But if it's the difference between paying tax at 60% down to 20% or from 60% to nothing then it really can make a difference ...
We can all learn from these four top tax tips for high earners!
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Sometimes, there isn't much that you can do, and at other times there is quite a lot! Anyway, read these four top tax tips and compare them to what you do:
Everyone should consider putting money into their pension. As a high earner, it becomes an excellent way of obtaining tax relief.
Be careful of the annual contribution limits. If you aren't sure what yours are, then find out as getting this wrong can cost you tax rather than save you tax.
As a high earner, pension contributions get you tax relief at your highest rate of tax.
Don't forget to consider pension contributions for your spouse, especially if they are a non, or low earner. Even a non-earner can pay £240 per month into a pension scheme and the taxman will top this up with an extra £60 per month!
Make full use of the ISA limits. Having your savings or investments held in an ISA means that they are tax-free, no income tax on the interest and no capital gains on the investment profit.
Don't forget that you can invest new money each year, up to a contributory limit. You can even have more than one ISA you contribute to in the same tax year, subject to the overall annual contributory limit. Which means you can build up a big pot over time and not pay tax on your savings as you do.
If you are married, then you can each have an ISA and save up to £20,000 into them.
Also your kids can have a junior ISA and save up to £4,080pa.
In the unfortunate circumstances of inheriting your spouse's ISA then you can transfer their ISA into your own name.
If your circumstances fit, then you can save up to £200 per month into a Help-to-Buy ISA and the government will give you a bonus worth 25%. The maximum government bonus is £3,000, so you save £12,000 over 5 years and the Government will then pay £3,000 towards the purchase of your first house. A great planning tool for your kids as they are available to anyone who is 16 or older.
You can also have a Lifetime ISA, if you are under 40! You can save up to £4,000pa and the government will add a 25% bonus each year. However, the government also imposes a 25% penalty if you don't use the savings to buy a house or don't wait to make withdrawals until after age 60.
If you have one then you will be aware of the tax relief changes. So what are you going to do to maximise your tax relief? There are a few points to consider here:
Put your rents up. Ok, you will pay more tax but you will also get more income!
If you have a mortgage, consider rate hunting and getting a better deal.
Have you checked out if you can utilise a limited company to hold your property portfolio?
If you don't have a Buy-to-let property then is it worth getting one and gear it up really highly? Borrowing to invest in something sounds like a contradiction in terms, but you still get tax relief on your cost of borrowing, even if it is now restricted. Buy-to-lets can be a great way of investing for the future.
Play the market
Firstly, this is not for everyone. Remember you can set up a stocks and shares ISA to hold your investments, which means they are in a tax free environment.
Playing the market can be very good however, don't invest money you can't afford to loose!
Finally, bear in mind that the more money you have, the more the taxman will pay attention to you! Also remember that despite the taxman saying that "tax doesn't have to be taxing", it quite often does get complicated!
"Would you like to know more?"
If you need help with your tax affairs or things are getting serious with the tax man then do get in touch with me on 01234 752 566 or click here to send me an email enquiry and I'll see how I can help you.
Until next time ...
If you're looking for a new accountant to help grow your business, do visit www.jvca.co.uk and discover how Jonathan Vowles Chartered Accountants can help you!
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.