Do you want to to save millions of pennies in taxes?
We have heard that every penny counts, as pennies make pounds. How about £11,900? That is a whole lot of pennies and I am sure they do definitely count, although it will take a considerable amount to count 1,190,000 pennies. Today I will tell you how to save £11,900 in taxes or shall I say 1,190,000* pennies?
If your income exceeds £120,000, you lose £10,000 of your personal allowance, which is a potential tax loss of £4000. Now the question is how to retain your personal allowance to save £4000? I can write a whole lot of tax gibberish but I would rather give you an example:
You have an adjusted net income of £120,000, out of which £30,000 is interest earned from investments. Your spouse does not work and therefore has no income. If you choose to transfer the investments to your wife, your income will be reduced to £90,000 which will allow you to retain your personal allowance and therefore a saving of £4000.
Don’t forget that if you choose to retain the £30,000, not only you will lose the personal allowance but you will also pay tax on £30,000 at 40%. This means a total loss of £11,900 (explained below in the example). As your wife has no other income, the £30,000 you transferred to your wife would be taxed at 20%.
Option one – Retain £30,000 and pay tax at £120,000.
Tax liability - £41,527.
Option two – Transfer £30,000 to your wife.
Your tax liability - £25,627.
Your wife Tax liability - £4000.
Total Tax liability in option 2 - £29,627.
Tax savings - £11,900.
I believe this may help you pay a decent portion towards your children’s education.
*The tax savings are calculated based on the figures in the example.
Please note: This doesn’t not constitute as tax advice. Professional advice must be sought before any tax planning. The tax planning may differ based on your individual circumstances.
Accountant Directory is not responsible for the articles published by members. The views expressed are those of the member who wrote the article.