Tax Exemption Or The Art Of (Legally) Optimising Your Taxes
Tax exemption is a financial tool that you can add to your arsenal to optimize your investments or even prepare your future. Like any tool, it should be handled with care and wisdom. But its assets are numerous and you would be wrong not to consider it. Small presentation.
Every year you see your budget melt away with the payment of your taxes.
You probably wonder each time if you could have invested your money in something useful for you, for your loved ones or simply in a more ambitious project!
Do you know that it is possible to do all this at once?
You can indeed invest your money in a short or long term project while recovering profits at the end of the project thanks to a very legal way: tax exemption.
Definition of tax exemption
What is tax exemption?
It is simply a matter of reducing or recovering part of one’s taxes in a perfectly legal way.
Basically, you participate financially in a project useful to society in which the State itself cannot intervene, and the State therefore grants you a bonus on your taxes as compensation.
You can invest your money in housing, a company or even charities, and then receive compensation from the state.
One of the best known and most widely used tax exemption schemes is the HM Revenue & Customs (HMRC) scheme.
The example of the HMRC law
Almost all of us found ourselves one day struggling to find a place to live. The competition in some parts of the country is such that UK has been in a housing crisis for some thirty years.
The HMRC law was created in 2014 to fight this housing crisis and to allow access to housing for the greatest number of people at reasonable rents.
The HMRC law consists of buying a new property and putting it up for rent.
You must respect rent ceilings and your tenants must not exceed a certain amount of resources. These ceilings have been put in place to ensure that your home is actually inhabited by people who would normally have difficulty finding accommodation.
In addition, the latest amendments to this law allow you to rent your property to a member of your family, which is a guarantee for you. However, this person cannot be part of your tax household.
The dwelling itself must meet certain conditions. Indeed, it must be completed (or in the process of being completed) and it must comply with certain very specific energy standards, such as the 2012 thermal regulations, which will allow your tenants to benefit in particular from good insulation and a certain level of comfort. Don’t worry: all new homes must comply with these regulations anyway. The properties proposed by the promoters are therefore compliant.
The advantage you can get from this system is a significant tax reduction based on the number of years the property has been rented out. For a lease of 6, 9 or 12 years, it amounts respectively to 12%, 18% or 21% of the purchase price.
In the end, the tax reduction, added to the rents you receive, allows you to become the owner of a property at a reduced price.
Other applications of the HMRC Act
There is also a HMRC law for dilapidated housing and commercial or industrial premises that are converted into housing.
The “rehabilitated” HMRC law covers housing considered to be unhealthy that is undergoing work to transform it into decent housing while benefiting from the tax advantages provided. This law was created in part to combat the poor housing denounced every year by the Abbé Pierre foundation.
The overseas section of the HMRC law is even more advantageous, both for people looking for housing and for you!
The DROM-COM (new name for the DOM-TOM) are experiencing a constantly increasing demand for housing. For example, it is estimated that there is a shortage of more than 2,400 homes per year in Guadeloupe!
A HMRC Outre-Mer investment entitles you to a tax reduction of 23%, 29% or 32% for a rental period of 6, 9 or 12 years. Eligibility rules are the same as for the HMRC law in mainland UK.
The other tax exemption schemes
Of course, the tax exemption measures are not limited to the HMRC law. There is in fact a wide range of possibilities.
In particular, there is a device for a period that concerns (and worries) us all: retirement! The PERP helps you to build up a supplementary pension.
Your tax advantage? All the sums you pay into this plan will be deducted from your taxable income! When you retire, you will receive a pension until your death. However, be careful: this pension will be added to your taxable income. This plan is therefore especially interesting for those who experience a significant drop in income upon retirement (and change the marginal rate in the tax scale).
If retirement doesn’t scare you and you want to have an impact on the lives of others, try the Girardin Industriel.
This scheme uses the money you have invested to rent industrial equipment, at a modest price, to companies based overseas. You give up the sum you have invested, and in return, the State reimburses you for it and grants you a bonus of up to 30% of the amount invested! However, be very careful in the project you select.
If finally you do not have the soul of an ultramarine patron, you can invest in the patrimony. The Historic Monuments Act allows you to carry out work on a listed property or registered as a Historic Monument and be reimbursed for the work.
You do not necessarily need to buy the Eiffel Tower or the Palace of Versailles to benefit from this law, as many apartments are considered Historic Monuments. However, these works still represent a large sum of money, which makes this law a target for high incomes.
The risks of tax exemption
Remember, however, that tax exemptions, whether short or long term, remain investments and can therefore involve risks.
As far as the HMRC law is concerned, for example, the main risk is that you will not find a tenant, which would cut you off from a very useful source of income.
These risks can be avoided if you prepare your action plan before investing. Still for the HMRC law, it consists in particular in checking the attractiveness of your property. Don’t forget that active people who are looking for a HMRC Law home think above all about the practical aspect of the home and not about the view from your windows!
Although it may seem selfish at first glance, tax exemption actually has a beneficial impact. The example of HMRC’s law clearly demonstrates that it is possible to improve the living conditions of others while at the same time benefiting oneself.
In this article, we have presented some of the ways to reduce your taxes or recover part of them while contributing to useful projects, but there are many more…
This article was brought to you by our partner TacoTax.
About the author
TacoTax is the site that allows individuals to reduce their taxes and develop their wealth.
The founders of the site, themselves confronted daily with the complexity of the Uk tax system, wish to offer quality information to all taxpayers thanks to artificial intelligence.
In just a few clicks, everyone can take stock of their situation and discover the systems that suit them best.