How Can I Reduce My Tax Bill?

QuestionMarkQ. As a high earning dentist, I pay large amounts of income tax. I get it that this goes with the territory, but I want to explore schemes which can help reduce my tax bill.

What advice would you give?

A. You are of course not alone in wanting to minimise the amount of tax you pay. This is something that we cover with all clients to one degree or another.

Sticking to income tax, and gaining a relief, there are few tried and tested routes that would make a significant impact.

Pension Investment – if you invest in a pension then this will reduce your top level of tax you pay. The problem, however, is that the vast majority of our clients are being hit by the reduction in the Lifetime Allowance, which limits the size of the pension pot you can build up.

Alternatively, you could take out a pension for a spouse or children.

Enterprise Investment Scheme (EIS) & Venture Capital Trusts (VCT) – here you can gain 30%tax credits as long as you have paid the amount of income tax you are claiming. So a £100k investment would get a £30k tax credit.

These are riskier investments, with special rules, but can be valuable as part of an overall strategy.

Of course there are other ways you can help save tax. For example, maximise your ISA allowances which are now a lot higher at over £15k pa per person.

We would add a note of caution at this point!

We have had clients who have in the past been advised by advisers or accountants to invest in various weird and wonderful ‘tax schemes’.

In many cases this has resulted in a sizeable tax bill when the scheme(s) fail.

The carrot of wiping out a tax bill is very tempting, and these schemes can sound almost foolproof. Our advice would be to think many times before you even consider them.

Figures show that HMRC had collected more than £2 billion in disputed tax from tax avoiders, in 2014 alone. If anything, HMRC are tightening the noose.

This is merely a brief look at this subject, and as ever we urge you to get professional advice.

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About Graeme Urwin

My passion is to help senior doctors and dentists organise their finances to create their own strategy to achieve their goals in life. I do this impartially as I charge fees. Outside of work the words that best describe me are: family man, squash, badminton, jogging, travel, reading, archaeology, genealogy, writing a book on Robert the Bruce. I live in the hills of Northumberland in Rothbury and believe in living the life you love.