Avoiding Tax Avoidance Confusion


Lexington found that few people had heard of the K2 tax avoidance scheme until it was linked to various wealthy individuals.

K2 is an offshore arrangement that can reduce an individual’s income tax liabilities to as little as 1%, according to its promoters. HMRC is now investigating K2 in depth and the Government has promised a more general crackdown on tax avoidance.

One thing is clear: the tax avoidance environment has changed radically in the last few months – reinforcing changes to the law that governments have made in recent years. Aggressive tax avoidance is now much more risky, but normal tax planning is still perfectly acceptable. Here are some key strategies Lexington Wealth Management have put together for you to consider:

Paying more into a pension. This reduces taxable income, and a higher pension contribution may help you stay out of a higher rate tax band.

Using the ISA allowance. Income on ISAs is tax-efficient and does not need to be declared on tax self-assessment forms. You have an annual ISA limit of £11,280, of which up to £5,640 can be invested in a cash ISA and the remainder invested into a stocks and shares ISA.

Using the annual capital gains tax exemption means you can save tax on up to £10,600 each year.

Sharing the ownership of assets with a spouse or civil partner can, in many cases, allow couples to make really significant income tax and capital gains tax savings.

Making use of other tax wrappers such as offshore and UK life assurance based bonds. These are especially helpful for inheritance tax planning, but they can also assist if you need an income.

There are advantages and drawbacks to using all these strategies or products and they depend on individual circumstances. So don’t take action without competent advice.

Tax rules, rates and allowances are all subject to change. Tax and pensions lawcan change. The Financial Services Authority does not regulate tax advice and some forms of offshore investments.