What is a high net worth individual?
There is no formal definition of high net worth individuals, but HMRC’s view is that anyone with £10 million or more in assets would be considered a high net worth individual. However, if you have assets worth more than £1 million or have a six figure annual income, then you would probably benefit from the advice of a tax accountant.
Why does a high net worth individual need an accountant?
Your accountant can help you protect your assets in a number of ways and suggest tax saving options to maximise your income and worth.
The top benefits that most clients report from having tax advice from accountancy firms including being kept up to date with the latest changes in legislation and receiving advice on how to be tax efficient. Not only can professional accounting advice ensure that you remain compliant, but it can save you valuable time and money in the long term.
Knowing that your tax issues are in good hands lets you focus on what you do best. At Butt Miller our team members work together to give our clients the best outcome possible.
Wealth planning & protection
Whether you are building wealth or have already accumulated or inherited assets, getting the best out of your financial and tax planning will make a difference.
The way you structure purchases or sales of assets can make a difference to Stamp Duty and Capital Gains Tax liabilities. Accountants can advise on the most tax efficient way to structure these transactions as well as recommending ongoing strategies to manage your Income Tax liabilities and advise on tax efficient shelters.
High net worth estate planning
Making sure that your family is supported in the way you want after your death is an important part of estate planning. With the Inheritance Tax thresholds being frozen for the foreseeable future, more and more taxpayers who would not perhaps consider themselves high net worth individuals, are being caught up in the tax net.
Planning your estate and managing your tax affairs is becoming essential to avoid losing more than necessary to HM Revenue and Customs. A good accountant will have a number of tools to offer you, from advising on reducing your taxable assets during your lifetime to planning your will.
An investment portfolio is generally thought of containing company shares, but the investments in a healthy portfolio will focus on more than just that. Your fund manager should be looking for a balance in the assets, whilst taking into consideration taxation issues that can arise.
Tax friendly investments
Tax friendly investments can reduce your overall tax liability, either by sheltering the funds from Income Tax and/or Capital Gains Tax, or by giving a deduction from your tax bill.
Common investments in this category are:
- Premium Bonds
- Pension funds
- Venture Capital Trust shares
- Enterprise Investment Scheme company shares
Inheritance tax is charged when you hold total assets of more than £325,000 on your death. There are a number of options for reducing the tax you would pay on death, notably, giving away assets during your lifetime.
The threshold for paying the tax has not moved in a number of years, and is set at this level for the foreseeable future. This freezing of the threshold will bring more taxpayers into IHT, even though they might not consider themselves to be high net worth individuals.
Capital gains tax
Capital Gains Tax (CGT) applies to profits you make on selling assets, but can also apply to gifts you make where you don’t receive any money for the gift, but you are treated as having received Market Value for the gift.
There is an annual tax free allowance, which currently covers the first £12,300 of Capital Gains. Any excess is taxed at a rate between 10% and 28%, depending on how much your total income was in the tax year, and what type of asset has been disposed of.
Personal tax is paid by individuals on their income and occasionally Capital Gains they have made.
Individuals with income of less than £100,000 are entitled to a tax free allowance each year, (currently £12,570), and the income in excess of that allowance is taxed at rates between 7.5% and 40%, depending on the amount and type of income received.
Once income exceeds £100,000, the personal allowance is withdrawn until it is completely lost when income is over £125,000. When income exceeds £150,000, the tax rate increases to 45% or 38.1%, depending on the type of income.
Capital Gains in excess of the annual allowance are added to income to establish which tax band the gains will fall into. The tax rate on gains within the basic rate band is either 10% or 18%, increasing to 20% or 28% if the gains exceed the higher rate tax threshold.
How Butt Miller can help
At Butt Miller we can help you ensure that your tax affairs remain compliant, your tax liabilities are paid on time and you structure your finance in the most tax efficient way.
Our tax services include tax planning for transactions you are about to undertake so that you don’t pay anymore tax than absolutely necessary or making sure you pay as little Inheritance Tax as possible.
Please call or email us at Butt Miller, we’d be delighted to help.
High Net Worth Individuals Accounting FAQs
What is the difference between mass affluent and high net worth individuals?
The term ‘mass affluent’ tends to apply to those who have disposable wealth of less than £100k – whether that is cash reserves or assets that can be sold.
High net worth applies when the individual has assets worth more than £10 Million according to HMRC. For tax planning purposes however, we would consider anyone with a six figure income or more than £1 Million in disposable wealth to be high net worth individuals for tax planning purposes.
What is personal tax planning?
Personal tax planning can reduce the tax you pay on your income or assets, depending on your individual position. It can involve changing the way your assets are held or your income is paid to you, and it can also mean putting money into a tax efficient fund, such as a pension or an ISA.
What are limitations of tax planning?
There aren’t many limitations to tax planning that can be done, but there are certain activities that would require involving independent financial advisers or legal professionals.
Non UK residents will raise additional issues, as any planning for UK taxes will need to take into consideration the impact of their overseas affairs to ensure any planning carried out is a success.
Non UK domiciled individuals can benefit substantially from tax planning, but again, there needs to be a balance between UK taxation and overseas liabilities
What is the difference between will planning and estate planning?
Whilst the two terms can be interchangeable, your will does more than distribute your estate when you die. You can include instructions on your funeral and also make decisions on who will be responsible for minor children, for example.
Estate planning is about looking after your wealth and can involve planning for actions during your lifetime, which will reduce your net worth before you die. This is an easy way to reduce the Inheritance Tax payable on your death, if you get it right!