Tax Planning: What have we learned?

Over the month of February, we have delved deep into the big black box of UK taxation. Let's round off Tax Month by covering some key lessons about tax planning that we have learned over the past few weeks.

Tax Planning – what have we learned?

Of course, we have barely scratched the surface of the whole tax code, but we have covered pretty much everything you need to KNOW and DO to make sure your financial life is as tax-efficient as possible. Here are four key lessons, and some links back to the detail:

Tax is a necessary evil

None of us like the idea of paying tax, or at least, paying too much tax. But the fact is that we wouldn't like to live in a country without a decent tax system. Tax is collect by the state to pay for the infrastructure we need for modern life: hospitals, roads, criminal justice system, emergency services, education – all the stuff we take for granted every day.

Back in one of the first blog posts of the month, I covered why I think it is important that we pay our fair share.

The Revenue will fight for its fair share

In that same blog post, I covered the difference between tax evasion and tax avoidance. Every year, more and more legislation is brought into existence to close loopholes, culminating in the general anti-abuse rules which HMRC instigated in 2014 and which is continually updated.

Those who look to rob HMRC of its due by using complicated tax schemes, probably deserve what they get, when those schemes get shut down. We've heard lots of stories of actors, musicians and Premiership footballers having to pay millions in back-taxes. Funny, the accountants still get to keep their fees…

Ch-ch-changes are coming

2016 is a big year for tax changes, and generally they are for the better. There is a simplification of the income tax treatment of dividends, which replaces an arcane system which has been in place for years.

Also, income tax on savings interest is being both simplified and, I believe, made more generous. the first £1,000 will be tax free for every basic rate taxpayer, and the first £500 for higher rate payers. All interest will be paid tax-free, so you won't have to claim back tax paid in error.

There are many tax planning angles of which to take advantage

We have covered income tax planning in depth and also capital gains and inheritance tax planning. last week's podcast was then a total tax-planning checklist which if you tick off all the options on there, will make your affairs as tax-efficient as possible, without putting one over on the Revenue.

Think of the money you could save in tax over the years for example, by locking in capital gains and losses as you go along, instead of right at the end. Or by using salary sacrifice to get maximum tax relief at source for your company pension contributions.

These kinds of tax planning approaches are legal, laudable and indeed encouraged by the government. You wouldn't pass up a £50 note if I gave it to you. Not to use these legitimate tax planning angles is just the same.