{"id":137156,"date":"2025-03-16T10:37:22","date_gmt":"2025-03-16T10:37:22","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/tax-avoidance-and-f-i-r-e-south-wales-fi\/"},"modified":"2025-03-16T10:37:22","modified_gmt":"2025-03-16T10:37:22","slug":"tax-avoidance-and-f-i-r-e-south-wales-fi","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=137156","title":{"rendered":"Tax avoidance and F.I.R.E – South Wales FI"},"content":{"rendered":"


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Before I get into the details of tax avoidance, I just want to clear up the difference:<\/p>\n

Tax Avoidance<\/strong>\u2013 totally legal schemes, encouraged and supported by the UK Government to avoid paying taxes. These are entirely legal- written into legislation, and will never get you into trouble<\/p>\n

Tax Evasion<\/strong>\u2013 these are \u201cshady\u201d schemes at best, that involve you doing things like investing in dodgy \u201cfilm making\u201d schemes, or other types of loans that incur losses that can be offset. These are usually illegal- but can be presented as legal by the people\/accountants that sell them to you. I will NOT be talking about using any of these schemes, and seriously suggest that you don\u2019t either.<\/p>\n

Just another note about Tax- I totally agree that we (as a society) need to pay it to ensure access\/availability of services, especially to people that cannot otherwise afford it. You only have to compare our National Health Service (NHS) to other countries such as America to realise how lucky we are to have this \u201cfor free\u201d (at point of use, with no insurance required). Now, of course, services like this have to be paid for- and that\u2019s done using taxes. Without taxes we wouldn\u2019t have not just hospitals\/doctors, but no roads & other transport infrastructure like trains, schools- and well, basically a functioning society. <\/p>\n

I guess, what I\u2019m trying to say, is that I feel that taxes are required, and I really don\u2019t mind paying them. Well, the ones that I have to pay at least!. We have (I think) a great PAYE (Pay as You Earn) system in the UK, so as long as you are employed, you pay these taxes as you earn money. No big bills from the taxman at the end of the year (unless you are self employed etc), and I think this works pretty well for most people.<\/p>\n

What that doesn\u2019t mean however, is that you should willingly hand over more money to the tax man that you really need to. So what methods\/tools can you use to reduce your tax? Read on!<\/p>\n

Personal Allowance<\/h2>\n

Everybody* gets a personal allowance, currently \u00a312,570 before you have to pay any tax. If you are PAYE, then this is dealt with by your tax code automatically. If you are already FIRE\u2019d, then a small amount of consulting\/freelance- or other income, can fill this allowance without paying any tax at all.<\/p>\n

*Not quite everybody, as high earners (\u00a3100k+) start to lose this allowance (though, you might be able to retain it if you use pension contributions, see below)<\/p>\n

Pensions<\/h2>\n

I\u2019ve written before how a Pension will be the best investment you will ever make<\/a>, and it really is from a tax avoidance point of view. Literally every penny you put into your pension has the tax that you would have paid given back to you straight into your pension to grow for years and years. Let alone the fact that by law your employer has to match some of this as well- means you can usually almost double the amount you put in.<\/p>\n

Don\u2019t forget that you can put way more into your pension than the employee\/employer minimums as well- pension tax relief is at least income, and up to \u00a340,000 a year (there are some exceptions). <\/p>\n

ISAs<\/h2>\n

ISAs are an absolutely great tool for investing your money within. I\u2019ve written about these before here<\/a>. With a massive \u00a320k yearly allowance to use- over a very short time frame, huge amounts can be put into investments that are free from tax- forever! You only have to put some amounts away every month\/year and let compound interest take effect to see huge savings enabling F.I.R.E!<\/p>\n

Plug in your figures here<\/a> to see how quickly this can make a huge difference. With \u00a310k in an ISA yearly, with a 6% growth for 10 years:<\/p>\n

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That full \u00a351,045 would be entirely tax free as well- unlike earning income that would be charged at least 20% tax (and NI on top of that potentially as well).<\/p>\n

Capital Gains<\/h2>\n

The main capital gain that everybody uses- is the \u201cPrivate Residence Relief\u201d- which basically means, if you sell the house that you live in, you do not have to pay any capital gains<\/a>!. This can be a huge gain in value terms, as houses continue (so far) to go up in value, and you don\u2019t have to pay any tax on this increase at all. You can see now, why it can be worth buying a smaller house and extending it (or otherwise increasing its value) and then selling it- all those gains are entirely tax free.<\/p>\n

The other Capital Gains allowance is a massive \u00a312,300 every single year <\/a>(per person). There are quite a few assets <\/a>that can form part of these allowance- thought the main one is shares (that are not part of your ISA allowance above). You can use this allowance to \u201cbed and ISA<\/a>\u201d as well to combine these 2 tax free allowances.<\/p>\n

Trading Allowance<\/h2>\n

The name of this allowance is really a misnomer- it\u2019s nothing about trading like shares\/stocks, it\u2019s about self employment. For most people- you get a \u00a31,000 \u201ctrading allowance\u201d which means you can do a few self employment jobs without even filling in a Self Assessment!. Really useful if you have a 2nd job\/role that you can perform on a consulting\/freelance basis.<\/p>\n

Rent a Room Scheme<\/h2>\n

If you have a spare room in your house, then you can rent it out under this scheme<\/a>, and the first \u00a37,500 is entirely tax free. There are a few rules that you have to follow- but as long as you live there and its furnished, you can use this tax relief. What\u2019s even better is that its automatic, and if you don\u2019t go over this allowance then you don\u2019t even have to fill in a Self Assessment! You can also let out as much of your house as well- so 2\/3\/4 bedrooms, it doesn\u2019t matter.<\/p>\n

Do note that you will need to:<\/p>\n