5 steps for an effective tax planning strategy

Having an effective Tax Planning Strategy isn’t just thinking about the here and now and saving yourself tax in the short term. All tax planning needs to begin by asking yourself: What are your plans? Where are you going? What saves you tax now, might burden you with tax in the future. So we’ve compiled a list of the top 5 questions business owners should consider when planning for their future.

1. Are you using the right business structure?

Is your business structure causing you to pay more tax than is necessary? Everyone’s circumstances are different, so there isn’t a ‘one size fits all’ method by which to keep your tax bills to a minimum. Sole Trader or Limited Company? Partnership or LLP? We look at which structure is right for your business.

2. Are you claiming all your allowances?

From the personal tax side of things, where you might want to consider marriage allowance, through to  your annual tax-free allowances on capital gains, there’s a lot to think about. There’s the corporate side: Indexation allowances (allowing for the effects of inflation when calculating the chargeable gains of your company), claims for research and development if you’re developing new services or products, or applying for a lower rate of corporation tax to profits earned from patented inventions. Have you looked at your allowances from all sides?

3. Have you considered your household income and tax position?

Do you have family members working in the family business? Could you be taking advantage of the lower tax rates and personal allowances that may be available to your spouse, or children? You might want to consider looking into options to transfer ownership of income-producing assets to a non-working spouse, to help reduce your household’s overall tax bill.

4. What are your long-term plans?

It’s never too early to plan for how you will exit a business, or to think about how you’re going to fund your retirement. As life expectancy rises, many of us could be expecting up to 30 years of retirement.  So how will you generate passive income to keep you secure through this time? Have you thought about property investment as a pension? A Self Invested Personal Pension (SIPP) could provide investment flexibility including commercial investments such as offices, shops and factories. A clear structured approach to your long-term plan can provide you with a strong foundation, which maximises your income, takes advantage of tax breaks and provides security for your dependants.

5. Is your family going to be left with an inheritance tax headache?

Inheritance tax (IHT) is a tax on the estate of someone who has died and can be a very real dilemma for many individuals and their families. The first step in assessing this area of your tax strategy will be to find out whether your estate falls above the set threshold. If you think your estate may be liable, early planning can help to mitigate the cost.  Can you gift your house to your children? Will that have capital gains tax implications? You might want to plan early and think about putting spare cash into a pension.

This article is great for getting the ball rolling and thinking about what you’ll need to consider for an effective tax strategy. But you will need more. 

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