Tax Advisory

Tax optimisation and planning

Having a solid financial plan must take taxes into account. Whether you’re planning your company’s operating budget or a future investment, taxes are an essential part of any competent financial plan.

The aim of tax planning is to ensure tax efficiency by making business decisions that maximise the tax benefits for your business. Tax planning is an important part of your financial strategy because reducing your tax liabilities will save you money and allow you to achieve the rest of your plan more quickly and effectively.

Timing is a critical factor in tax planning – action should be taken as early as possible, preferably at the start of each financial period.

Tax optimisation is an important element of tax planning.

This process involves reducing tax liabilities in both the short and long term. It should always be carried out in accordance with the law to avoid penalties from HMRC. This can be achieved by preparing, reporting and paying tax correctly and on time. We can help you optimise your UK taxes:

• Utilizing tax reliefs
• Advising newly established businesses on choosing the optimal legal structure
• Eliminating errors in tax filings and maintaining proper and accurate documentation
• Legal cost deductions (including flat-rate expenses)
• Expert advice on all tax matters and controversial tax issues
• Reviewing the tax plan prepared by your staff
• Advising on calculating and paying taxes and fees

To encourage you to use our services, below are some basic details about the most popular tax reliefs in the UK.

Tax Reliefs for the Self-Employed

There are many different reliefs available for the self-employed that can reduce their tax liabilities. These include:

• Allowable expenses: Most legitimate business expenses reduce taxable income. A legitimate business expense is anything that can be logically linked to the running of the business.
• Flat-rate expenses: You can claim lump-sum expenses instead of actual costs for vehicles, working from home or living in your business premises.
• Investment relief: This allows you to deduct the full cost of business assets (such as equipment) up to £1 million per year (reduced to £200,000 from January 2021). Any expenditure in excess of this limit in a given year can be deducted from tax in subsequent years.
• You can claim the 'trading allowance’ of £1,000 if your annual turnover as a self-employed person does not exceed this amount. In this case, you don’t need to register as self-employed.
• Trading losses can be used to reduce the tax from other business income.
• You can take advantage of “overlap relief” if you change your accounting date or cease trading.
• Special reliefs may apply to farmers, gardeners, carers, solicitors, writers and artists.

Tax Relief When Selling a Home in the UK

You won’t pay tax when selling your home in the UK if all the following conditions are met:

• You only own one home and you’ve lived in it as your 'main’ home for the whole time you’ve owned it.
• You haven’t let out any part of your home (other than to lodgers).
• You haven’t used any part of your home exclusively for business purposes.
• The total area of your property, including all buildings, is less than 5,000 square meters.
• You didn’t buy the home purely to make a profit on its sale.

If you don’t meet all these criteria, you may have to pay capital gains tax when selling your home.

Different rules apply if you sell a property that isn’t your main home or if you live abroad.

Inheritance Tax

Inheritance tax is a tax on the estate (money, property, and possessions) of someone who has passed away.

There’s usually no inheritance tax if:

• The estate’s value is below the £325,000 threshold.
• You leave everything above the £325,000 threshold to your spouse, partner, charity, or amateur sports club.
• IMPORTANT: Even if the value of the estate is below the threshold, it must still be declared to HMRC.

If a home is inherited by children (including adopted or stepchildren) or grandchildren, the threshold can be increased to £500,000.

If you are married or in a civil partnership and your estate is worth less than £325,000 (or £500,000 for children and grandchildren), any unused thresholds can be added to your partner’s threshold upon death. This means their threshold could be as high as £1 million.

Inheritance Tax Rates

The standard inheritance tax rate is 40%, charged only on the part of the estate that exceeds the threshold.

Example:

Your estate is worth £500,000, and your tax-free threshold is £325,000. Inheritance tax will be charged at 40% on £175,000. (£500,000 minus £325,000) x 40% = £70,000.

The person inheriting the estate can pay inheritance tax at a reduced rate of 36% on certain assets if at least 10% of the “net value” is donated to charity.

Reliefs and Exemptions

Some gifts you make during your lifetime may be taxed after your death. Depending on when you gave the gift, tax relief may reduce the inheritance tax to less than 40%.

Other reliefs, like business relief, allow you to pass on certain assets without paying inheritance tax or at a reduced rate.

Inheritance tax is paid to HMRC from the estate by the person handling the estate (called an “executor” if inheritance is through a will).

People who inherit your property usually don’t pay tax on the things they inherit, but they may have related taxes to pay, for example, if they receive income from renting out a house left to them in a will.

People receiving gifts may pay inheritance tax, but only if you give them more than £325,000 and die within seven years.

Gift Tax

There’s usually no tax on small gifts, like Christmas or birthday presents.

There’s also no tax on gifts between spouses or civil partners. You can give them as much as you like over your lifetime, provided they permanently live in the UK.

Other, larger gifts are added to the value of your estate.

The people you give gifts to will be charged inheritance tax if you give them more than £325,000 in the seven years before your death.

What counts as a gift?

A gift could be:

• Anything of value, such as money, property, or possessions.
• The difference in value – for example, if you sell your home to your child for less than it’s worth, the difference between the sale price and the market value counts as a gift.

Exempt Gifts

Each tax year (from April 6 to April 5), you can give gifts worth up to £3,000 without adding them to the value of your estate. This is known as the annual exemption.

Any unused annual exemption can be carried over to the next year – but only for one year.

Each tax year, you can also give:

• Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child).
• Regular gifts from your income, like Christmas or birthday gifts.
• Payments to help with another person’s living costs, such as an elderly relative or a child under 18.
• Gifts to charities and political parties.

You can combine more than one of these exemptions for the same person – for example, you could give your grandchild birthday and wedding gifts in the same tax year.

Small Gifts up to £250

You can give as many gifts of up to £250 per person as you like each tax year, provided you haven’t used another exemption for the same person.

7-Year Rule

If inheritance tax is due, it’s charged at 40% on gifts given in the three years before your death.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as “taper relief”. The more time that passes between the gift and your death, the less tax is due (up to 7 years).

Time since gift                                  Tax reduced by

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell something (“an asset”) that has increased in value since you bought it.

The tax applies to the gain and not the total amount you receive.

Example.

You bought a painting for £5,000 and later sold it for £25,000. This means you made a profit of £20,000. Only the £20,000 is taxable, not the total amount.

Some assets are free from tax.

You also don’t have to pay Capital Gains Tax if all your gains in a year are within the tax-free allowance.

The tax-free allowance for Capital Gains is £12,300 (as of April 2020).

Disposing of an asset includes:

• Selling
• Gifting
• Exchanging an asset for something else (e.g., a painting for a sculpture)
• Receiving compensation (e.g., an insurance payout)

Capital Gains Tax is due when selling:

• Most personal possessions worth £6,000 or more, except your car.
• Property that isn’t your main home.
• Your main home – if you’ve rented it out, used it mainly for business, or it’s very large.
• Shares that aren’t part of an ISA or PEP.
• Business assets.

Depending on the asset, you may be able to reduce the tax by claiming relief.

You only pay Capital Gains Tax on your total gains above the annual tax-free allowance.

You usually don’t pay tax on gifts to your spouse, partner, or charity.

There’s no Capital Gains Tax on some assets, including gains from:

• ISAs or PEPs
• UK government bonds
• Lottery, betting, or pool winnings
• When someone dies
• When you inherit assets, inheritance tax is usually paid from the deceased person’s estate.

Overseas Assets

You may need to pay Capital Gains Tax in the UK even if your assets are overseas. Special rules apply if you’re a UK resident but have non-domiciled status and use the “remittance basis” rules.

If you’re abroad

You must pay tax on gains from UK property and land, even if you’re not a UK resident for tax purposes. However, you won’t pay Capital Gains Tax on other UK assets, such as shares in UK companies, unless you return to the UK within five years of leaving.

Double Taxation between Poland and the UK

The Double Taxation Treaty between Poland and the UK was signed to prevent double taxation and to prevent tax evasion.

The treaty applies to residents of one or both countries. It also applies to legal entities conducting business in both countries. Our firm can provide you with detailed information on how the treaty applies to specific business structures, such as branches or subsidiaries in Poland.

The Double Taxation Treaty between Poland and the UK applies to income and capital gains taxes.

Specifically, it covers:

• Income from real estate
• Business profits
• Dividends
• Interest
• Royalties
• Capital gains
• Employment income
• Income earned by specific professions, such as artists, athletes, professors, teachers, researchers, company directors, students, and public officials
• Pensions, annuities

Additionally, the treaty regulates the establishment of a “permanent establishment” in the contracting states and defines tax residency.

Representation with HMRC

Complex Accounting Ltd is an authorized agent of HM Revenue and Customs and can represent you and your interests before this body.