Planning is an everyday part of life, an essential one at that. But you might still be wondering why personal tax planning is so important.
Think of it this way: you wouldn’t go on a road trip without a map, or on a train without a ticket. While these outcomes would be slightly more dramatic, you get our point.
Personal tax planning allows you to look ahead into your financial year and find ways of potentially lowering your tax bill.
If you’re still not convinced, here are some reasons why you should consider personal tax planning.
Keeping more of what you earn
Tax planning isn’t just setting a date to pay your bill. It’s much more than that.
Outlining a good plan lets you look ahead and see where you can save and claw back some of those precious pennies — while keeping HMRC happy.
Throughout your lifetime, you’ll have several tax-free allowances to use. Granted, several thresholds may fluctuate in the future (if the past year or two is anything to go by), but regardless, you can still plan.
One great example of this concerns company directors, who can pay themselves a mix of salary and dividends. As dividends have a lower tax rate than regular income, topping up a low salary with lots of dividends will reduce their tax bill (in a completely legal way).
Keeping on top of your tax bill
While a big part of personal tax planning is about saving yourself money, it’s also about saving money to actually pay your bill.
Your tax deadline day is likely to stay the same year by year, so you know when you need to pay by — 31 January the year after the tax year you’re paying for.
Planning your tax payments ahead of time can save you a lot of hassle. If you set aside a bit each month, you’ll be comfortable knowing you can afford your bill when the time comes. This way, if there are any surprises, you’ll be more than ready.
Also, you’ll be able to keep track of whether you may be entitled to a possible tax refund, provided you’ve paid more than your obligation.
Setting up a safety net
Planning for your current tax year is one thing, but we always recommend looking further ahead when it comes to tax.
When you’re still working, you may not necessarily think about the inheritance tax bill your family will face when you pass away.
You have many opportunities to lower the tax charged on your estate throughout your lifetime. This could be through gifting money to family members, placing your assets in a trust or even making charitable donations.
Anything you can do to mitigate your family’s liabilities, the better — leaving more for them for the future. As always, if you’re unsure of the best ways to do this, we’re happy to help.
Get ahead of your taxes
As the old saying goes, failing to plan means planning to fail. By getting ahead of your personal tax planning, you’ll be able to find ways to potentially save some money while meeting your obligations to HMRC.
There’s no time like the present. Get in touch with our team to discuss your personal tax planning.