Here’s an extract from the most recent newsletter from Ray Prince and Graeme Urwin at Rutherford Wilkinson Ltd. I bumped into Ray at The Dentistry Show recently. A short while later I met someone who told me he had been talking to an accountant who guaranteed to cut his tax bill by a half. All I could think to say was, “If something seems to good to be true, it usually is.” I’m pretty sure that Ray & Graeme would agree.
Hot Topics Q&A: Be Careful With Tax Avoidance
Every week we receive questions from clients regarding all aspects of their financial planning. So, rather than keep the answers to ourselves (and clients) we publish one key topic each issue.
Q. As a high earning dentist, I pay large amounts of income tax. I get it that this goes with the territory, but I want to explore schemes which can help reduce my tax bill.
What advice would you give?
A. You are of course not alone in wanting to minimise the amount of tax you pay. This is something that we cover with all clients to one degree or another.
Sticking to income tax, and gaining a relief, there are few tried and tested routes that would make a significant impact.
Pension Investment – if you invest in a pension then this will reduce your top level of tax you pay. The problem however is that the vast majority of our clients are being hit by the reduction in the Lifetime Allowance, that limits the size of the pension pot you can build up.
You could take out a pension for a spouse or children however.
Enterprise Investment Scheme (EIS) & Venture Capital Trusts (VCT) – here you can gain 30%tax credits as long as you have paid the amount of income tax you are claiming. So a £100k investment would get a £30k tax credit.
These are riskier investments, with special rules, but can be valuable as part of an overall strategy.
Of course there are other ways you can help save tax. For example, maximise your Isa allowances which are now a lot higher at over £15k pa per person.
We would add a note of caution at this point!
We have had clients who have in the past been advised by advisers or accountants to invest in various weird and wonderful schemes.
This has in our experience resulted in a massive tax bill in the future when the scheme fails!
The carrot of wiping out a tax bill is very tempting, and these schemes can sound almost foolproof. Our advice would be to think many times before you even consider them!!
Figures show that HMRC had collected more than £2 billion in disputed tax from tax avoiders, in 2014 alone. If anything HMRC are tightening the noose.
This is merely a brief look at this subject, and as ever we urge you to get professional advice.”
Please send us your questions! It’s easy to do. Just email us at firstname.lastname@example.org (and if we publish it we’ll make it anonymous).