You have to feel a little sorry for Rishi Sunak. When you have a wife as rich as Akshata Murty, just how do you keep tabs on all her investments, making sure that each one of them is properly declared as an interest in the House of Commons Register? The Prime Minister has suffered the embarrassment of being investigated by parliamentary authorities over an apparent failure to declare his wife’s holdings in a childcare firm Koru Kids, which potentially stands to benefit from changes in the Budget. Sunak previously nearly had his political career derailed thanks to revelations that his wife, who is an Indian citizen, was living in Britain as a non-dom – a status she later gave up.
Ever wondered why so many wealthy people develop an interest in agriculture as they approach old age?
But all is not lost for the rest of us. There are many ways in which we can – quite legally – minimise the taxman’s claim on our income and wealth, even if we are not married to a mega-wealthy foreigner.
1. Use your spouse to redistribute your investments. It is perfectly legal to switch assets between spouses in order to avoid tax. If one member of a couple has a marginal tax rate of 45 per cent and the other 20 per cent, you can shift shares and property from the former name to the latter.
2. Increase your pension contributions. Until the Budget, anyone with a pension fund faced paying a punitive tax of 55 per cent once it reached a value of just over £1 million. That threat has now been lifted. Moreover, Jeremy Hunt increased the amount that any individual could transfer into a pension fund from £40,000 a year to £60,000. Those who do so enjoy immediate tax relief on their contributions. When they decide to take money out of their pensions they will enjoy a quarter of what they withdraw tax-free.
3. Maximise your ISA contributions. Individual savings accounts work differently from pensions, but also offer tax advantages. There is no tax relief, but holders of an ISA do not have to pay tax on any income or capital growth – which is especially important given that the tax-free capital gains allowance is steadily being reduced. Moreover, funds can be withdrawn at any time – you do not have to wait until you have reached the age of 55. Put in the maximum of £20,000 a year and you may well end up with a nest egg worth more than £1 million.
4. Invest in a Venture Capital Trust. Tax reliefs are available for those who are prepared to invest in companies at an early stage of their development. Some 30 per cent of funds you invest in a Venture Capital Trust qualify for tax relief. Moreover, you can invest up to £200,000 a year. You will need a strong stomach, however: early-stage companies have a tendency to collapse. For every Google or Amazon, there are many start-up companies that disappear without a trace, taking their investors’ money with them.
5. Buy farmland. Ever wondered why so many wealthy people develop an interest in agriculture as they approach old age? Agricultural land can qualify for 100 per cent inheritance tax relief. You don’t even have to drive the tractor yourself: land qualifies if it is tenanted or let on a short-term grazing licence. Some woodland qualifies too. Agricultural equipment or derelict buildings do not qualify.
6. Donate money to charity. Avoiding tax isn’t all about lining your own pockets – you can assuage your guilt by donating to charity while also cutting your tax bill. When you donate money to a UK-registered charity, the charity can reclaim basic rate income tax, which increases your £100 donation to £125. But you too can claim the higher rate tax relief. So, if you are paying tax at 40 per cent, you can claim the tax relief between 25 per cent and 40 per cent.
7. Let out a room in your house. Feeling lonely as you loll around your half-empty mansion? Thanks to the government’s Rent-a-Room Scheme, you can take in a lodger and earn some tax-free cash at the same time. The scheme allows you to earn up to £7,500 a year in rent tax free. You do, however, have to live in the property yourself in order to qualify.
8. Drive a seven-year-old fuel-efficient car. There are fewer incentives available to buy low-emission cars than there used to be – grants for electric cars, for example, have been phased out. However, cars registered prior to April 2017 retain the low vehicle excise duty rates which existed when they were registered. You don’t even have to go electric. If you can find a petrol or hybrid car that – in official tests – emits less than 50g of CO2 per mile, you will pay just £10 a year in road tax. Vehicles which emit between 50g and 75g cost just £30 a year.
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