Ways in Which Couples can Seek to Reduce Taxation Liabilities on Essay

Ways in Which Couples can Seek to Reduce Taxation Liabilities on Investments and Savings - Essay Example This is also the case for governments and institutions. So the question is therefore how such a financial stability can be achieved? The most obvious answer to this is by investing. Investing refers to the deliberate and calculated directing of funds into revenue generating activities. Almost invariably not all individuals are born into financial security. As a result they must therefore find ways to channel their finances such that they can grow significantly unto the future. Usually investments are made directly out of savings; savings out of personal income. The economic model for this relationship is given as i 0 f (s); s  f (y). This therefore means that investments are a consequence of foregone present consumption of personal income. This may perhaps be the elusive point to most young people eyeing for immediate financial prosperity without the sacrifice of and discipline regarding present consumption. After the establishing the origin of investments, a need arises to examine what the deciding and influencing factors for investments are. Economists present a direct relationship between investments and the interest rates for the underlined security i.e. i  f (r). Both households and institutions will make their investment decisions based on the expected rate of returns as expressed in relation to the prevailing interest rates in the market. Another influencing factor in investment determination (both the amount and area of investment) is the risk level associated with the investment. The Capital Asset Pricing Model postulates that the expected returns for any asset or investment is a function of the investor’s risk tolerance level as expressed through the variation in the realized from expected returns within the market. This means that the investments have a risk-reward mechanism where the investor’s tolerance to market uncertainties will primarily determine how much returns they shall get from chosen investments. Thirdly, the tax treatm ent on investment is also a crucial determinant for investment ventures. Investors would like to know what percentage of their earnings from investment would be paid out as tax. The tax treatment on investments made by singles, married couples and partners in civil unions is different. For this reason, this essay examines ways in which the tax obligation on investments made by married couples or those in civil partnerships in the United Kingdom can be reduced. Discussion Different types of investments have different tax treatments (www.pru.co.uk). This therefore means that the impact of any taxation as well as any tax relief will depend on the particular circumstances for the individual of which are subject to future change without notice. These considerations become more complex in civil partnerships where a disparity in the amounts earned or assets owned becomes a challenge in making financial decisions based on emotive feelings. According to British Laws on taxation, all couples (whether or not they are married or in civil partnerships or are cohabiting) are taxed separately as individuals. Every tax paying individual in Britain is entitled to the first part of their income free of tax. This is referred to as a personal allowance. All incomes in excess of this amount are therefore subject to the applicant tax rules. The personal allowance depends on the age of the individual and the total level of income over the taxable period. In this regard, there are three levels of personal allowance as shown in the table below relating to the current budget period 2012/2013: Personal income Basic personal allowance (?) Adjusted net income limit (?) Age 64 and below 8,105 100,000 Age 65-74