The art of marginal gains

The winning strategy behind Team GB’s cycling success at the Olympics has uses beyond the world of sport, as Derek Swift, director of Richardson Swift, explains.

Marginal gains – where small changes combine to have a big impact – helped Chris Hoy and the Team GB cycling team to victory in 2012, but this idea is relevant elsewhere too.

With the current complexity in our tax system, the next two months provide an opportunity for us all to consider our personal tax efficiency. And, put simply, being tax efficient is all about making marginal gains, wherever possible . Each individual saving may be quite small by itself, but combined, the overall effect can be surprising.

Why is timing important?

The tax year end is fast approaching on 5 April. However, this year there won’t be a March Budget to serve as an aide memoire to think about tax.

The trouble is that tax has never been so complicated, as there are currently eight rates of income tax and four rates of Capital Gains Tax.

The main advice is don’t delay. After the 5 April deadline has passed, there is very little that individuals can do, other than making a charitable gift or an investment that qualifies for tax relief, such as an EIS (Enterprise Investment Scheme).

How much could you save?

The first thing to do is forecast what your income will be for 2017/18 and then see if you’re near any of the points at which the tax rate changes. If you’re just eating into the next tax rate, then a small piece of planning can produce a relatively large saving.

As well as the tax bands, also think about the £50,000 band for child benefit and the £100,000 band (when you start to lose the personal tax allowance). The marginal rate of tax between £100,000 and £123,000 is close to 60%!

What are your options?

The nature of your income will influence the options open to you. If you’re an employee, then your options will be more limited and you will be looking at ways of getting relief by making tax-friendly payments, such as pensions or investments that give you a tax break.

Business owners may have more options around dividends, and married couples may have other opportunities to save tax. This year also sees the first reduction in higher rate tax relief on interest for landlords, which is an added complication.

I have deliberately not gone into the detail here, because personal tax efficiency is no longer a simple exercise and absolutely every case is different. Only by knowing what your situation’s likely to be, can you hope to minimise the tax you pay.

At Richardson Swift, we take exactly this approach. Call us to discuss your tax situation and the options you have.

To find out more, please contact Derek Swift or Calvin Healy.