Benjamin Franklin once said “in this world, nothing can be certain except death and taxes”. Well, clearly we can do nothing about the first, but, with careful planning we can reduce the effects of the latter through a number of different methods.

Taxing questions

Most of us risk being taxed on our income, our capital gains and the value of our estate when we die. It is worth obtaining a clear grasp of how these taxes work by discussing with your financial adviser the most tax efficient financial planning for you.

Income tax

The single person's income tax allowance for the year 2008/2009 is £5,435 (2007/2008 - £5,225). If your total income is less than this during the tax year, you have no tax to pay.

If you are on an income less than £5,435 (2008/2009), your bank or building society can provide you with Inland Revenue form R85 to apply for your interest to be paid gross.

For those over the age of 65, there are increased personal allowances available.

Income tax bands 2007-2009

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. McCrea Financial Services are experienced in taxation planning as well as providing assistance through recommending tax specialists from our many professional connections.

It is worth remembering you may be able to pay further contributions to your pension, which can utilise unused tax relief.

Since its introduction in 1990, Gift Aid allows higher rate taxpayers to receive further tax relief on gifts made to qualifying charities.

One other point to remember is if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching certain investments to take advantage of their unused tax allowances.

Capital gains tax

In the tax year 08/09 an individual has a CGT allowance of £9,600 (07/08 £9,200).

This means you do not have to pay tax on gains from buying and selling shares or other investments during the tax year up to that amount. In addition to this, any gains made may be reduced by what is known as ‘Taper Relief’. Remember that you do not normally have to pay tax on any gain you make when you sell your main residence.

If you have used your CGT allowance, don't forget your Individual Savings Account (ISA) allowance. Both a ‘Cash ISA’ and a ‘Stocks and Shares ISA’ can shelter capital gains on investments, for example unit trust holdings, worth up to £7,200 per year.

Please be aware that as of 6th April 2008 Taper Relief will no longer be available to reduce Capital Gains Liabilities and all gains over an individuals Annual Exemption will be taxed at a flat rate of 18%.

Inheritance tax

Over the last 10 years, the Government has more than doubled the money they receive through Inheritance Tax (IHT). In the last 5 years alone, house prices have, on average, doubled, whereas the ‘nil-rate band’ for IHT has increased by just over 15%. This alone has put more and more people over the IHT threshold, which stands at £312,000 per individual and £624,000 for a married couple, for 2008/2009.

When you die, it is likely you wish to leave as much as possible for your loved ones. Unfortunately this is often not as simple as you might believe. Her Majesty’s Revenue and Customs (HMRC) will apply 40% tax to the value of your estate over and above that of the current threshold.

No IHT is applicable if the estate is being passed to a spouse, as the law sees your property as one estate together, unless there is a will stating otherwise, so nothing is being passed from one to another, it is merely no longer held jointly.

Your estate could include more than you originally realise. It is often easy to dismiss IHT as something that may not effect you as your property may not be over, or much over, the IHT threshold. However with all your other assets, such as investments, life cover, bank accounts, as well as physical property such as cars, furniture and family heirlooms, many estates are considerably over the threshold without the individuals being aware of it.

Please note that as of the 9th October 2007, the options for usage of the nil rate band for IHT reduction were relaxed. Before October 2007, if a spouse (or civil partner) were to die and leave their assets to their surviving spouse, upon the death of the remaining spouse, only one nil rate band was available.

For assets passed between spouses and civil partners, the nil rate band allowance will now pass along with the assets. This gives a couple available allowances (nil rate bands) of up to £624,000 (08/09).

Even if you have a spouse to inherit the estate, this only delays the time when tax will be payable because he or she will also pass away one day. It is worth doing some forward planning with an adviser to decide whether it would be appropriate to gift part of your estate, perhaps to children or other relatives, during your lifetime, or possibly to redirect your assets up to the value of what is known as the ‘nil-rate band’ into a trust on death.

One thing is for sure with all forms of tax; if you do nothing. the government make sure a share of your hard earned wealth ends up in their hands.

At McCrea Financial Services we have experience and a wealth of knowledge of the taxation system and would be more than happy to assist you in ensuring you can leave as much as possible for the people you wish to receive your estate.

We also have a carefully selected panel of trusted professional connections, such as solicitors, who can help ensure your legal affairs (wills and trusts) are set in place correctly to meet your Estate’s requirements.