What does tax planning mean?
Tax planning refers to the process of minimising tax liabilities. In other words, you want to reduce what you owe on your tax bills by taking advantage of any allowances, exclusions, exemptions, and deductions, for business owners this would mean looking both at company taxes as well as personal taxation.
Types of tax planning
Tax planning is an integral part of every individual’s financial growth story. Since paying taxes is mandatory for every individual falling under the purview of the IT bracket, why not streamline your tax payments in ways that it offers substantial returns over a period of time with minimum risk, effective planning also reduces your tax liability drastically.
The different mind-set under which tax planning can be broadly classified are:
- Purposive tax planning
Planning taxes with a particular objective in mind
- Permissive tax planning
Tax planning that is under the framework of law
- Long range and short range tax planning
Planning done at the start and end of a fiscal year respectively
What are the benefits of a reduced tax bill?
A reduced tax bill
Reducing your overall liability for income tax, capital gains tax and wealth tax and other taxes on your savings, investments, assets and pensions.
If there is a more tax-efficient way to hold your capital and assets, shouldn’t you explore if it could work for you? Yet many people fail to do just that and unknowingly end up paying more then you should.
Once you are no longer UK-resident, certain assets that were tax-efficient back home, such as ISAs and UK investments bonds, may become taxable in your country of residence, and this year the tax burden could potentially increase in some cases as UK assets no longer qualify for any preferable tax treatment given to EU assets.
Less taxation for your heirs
With some investments structures you may also be able to lower the inheritance tax liability for your heirs. A locally-compliant life assurance bond, for example, can be highly tax-efficient for estate planning purposes. Ideally you want a solution that will limit inheritance taxes while also providing tax-efficient income and investment growth throughout your lifetime, so take personalised, specialist advice from ASMAT & CO to explore your options.
Maximising real returns
Effective tax planning also plays a part in helping returns outpace the cost of living. What counts when assessing the value of investments are actual returns, after all tax, expenses and inflation are taken into account. Property for example, is often lauded for producing relatively high returns over a long term, but with stamp duty, local rates, capital gains and potential wealth taxes applied, the tax burden can be very large compared to other assets.