Plan and stay a basic-rate tax payer
I was reading an article in The Sunday Times last week that said that with the right planning, it is possible to receive an income of nearly £70,000 per year, but pay only basic-rate tax which got me thinking.Our clients who have already retired should draw a pension up to the higher-rate threshold of £42,475 (those still working can keep their income below the higher rate by making a pension contribution). Then, use all their allowances.
A portfolio of £150,000 in assets such as unit trusts could realise a £10,600 gain tax free (your annual CGT allowance), based on a 7% growth per year. A £150,000 ISA portfolio could net you £6,000 a year, and an offshore bond worth £200,000 could give you up tp £10,000 per year tax deferred (you are allowed to withdraw 5% a year as ‘return of capital’ with tax deferred until encashment). When you encash your bonds, try to avoid the 40% tax by either being a lower-rate band (eg when you retire), or by giving them to a spouse or child over the age of 18 beforehand.
What is the result of this legal taxation conjuring? An ‘income’ of £69,075 and £7,000 tax (instead of £17,640.)
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