Friday, February 14, 2014

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HOW TO AVOID TAX

In virtually most of the developed countries in the world an average citizen works from New Year's Day to May 24th solely to pay their taxes. Effectively, for a third of a year everyone in this country is a civil servant. This is has a regular occurence every year. After this tax has been deducted, the little that remains is taxed again! If you spend it you're taxed. If you save it you're taxed so what then do you do with the remaining income so as not to be taxed?
Don't get confused here tax avoidance is actually LEGAL, but tax evasion is illegal as well as immoral so you don't need to have a guilty conscience while avoiding tax.

Here are few of the common methods used to cut the amount that ends up in the taxman's custody.

1. Start a Company
Here you won't avoid tax entirely but you will avoid a substantial amount of it. You will pay 20% on the company's profits in this case everything going into the company, and 10% "entrepreneur's tax" on the amount left in the trading company when it is liquidated. But say your take home pay was £200,000 or its equivalent in your country, over the three years, your tax bill would be substantially lower than had you taken the money as just income.

2. Employ your partner
We each have a personal allowance on which we don't pay any tax, then set amounts we can earn at different tax levels. If you own a business, employing your partner can help you spread some of the income you take from it to take advantage of two tax allowances that will be offered to you by the tax commission.

3. Make an investment
A number of tax reliefs exist to encourage investment in things like films and small businesses, and these can be used by the wealthy to cut their tax bill. The schemes offer upfront tax relief on your investment.

4. Give to charity
This is one of the strategies the government is planning to crack down on, although its plans have attracted controversy and could be watered down as a result.
Currently, if you give assets to charity you can claim income tax relief up to their entire value. 
In this case you are obviously losing the asset, but you are reducing your taxable income. Give enough away and you could reduce your taxable income to zero.
There is a way to keep hold of the asset and reduce your income. If you have a freehold property you could grant a lease on it and give that to the charity. For example, if you grant an eight-year lease the charity holds the property for the term of that lease and benefits from any rental income during that period, but at the end of the lease the property reverts to your ownership. You won't get tax relief on the value of the freehold property, but on the value of the lease

5. Don't take an income
"It's very hard once income has arisen to not pay tax on that income," Henderson says. "The super-wealthy can arrange their affairs so an income doesn't arise in a certain year."
Selling assets and realising capital gains could give you a source of cash if you needed it, and careful planning so losses in previous years offset any gains could help reduce your capital gains tax bill.

6. Make a loss
There are lots of losses that can be offset against income or capital gains to reduce your tax bill. Any good accountant will help their clients minimise their tax bill by finding legitimate losses they can use in this way, but some of the more "aggressive" tax avoidance schemes look for ways to make artificial losses.
There will be no real business and transactions will be done simply to create losses, which investors could use to reduce their tax liability.

7. Put your money offshore
Investment schemes exist that let you hold money in an offshore fund and roll-up the interest you earn on it. You will have to pay tax when you eventually withdraw the money, but in the meantime you can withdraw 5% a year without a tax liability. You can choose when you realise your investment, so you can plan it to fall when you are a basic rate rather than a high rate taxpayer.

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