While very few things are certain in life, especially when you have a career in professional rugby, tax is typically seen as an inevitability.
That said, although you will undoubtedly have to pay some tax throughout your playing career and beyond, it is possible to mitigate certain charges so that you are the biggest beneficiary of all your hard work.
The key to successfully reducing your tax bill is in being aware of the taxes you could face. From there, you can look at steps that may help you to mitigate them, and make your money as tax-efficient as possible.
So, read on to find out about three key taxes you might face throughout your playing career, and what you might be able to do to reduce the bill you owe.
1. Income Tax
Income Tax is charged on your total income from tax year to tax year. That includes the salary you earn from your club, as well as other taxable income you might have, such as:
- Rental income from a property portfolio
- Interest on cash savings (depending on exceeding certain limits)
- Sponsorship and endorsement fees
- Appearance, participation, and performance fees.
You then pay tax on the total of this income each month. The table below shows the Income Tax rates as of the 2023/24 tax year:
The tax rates apply to income earned within each bracket. For example, if you have a total income of £60,000 and have made no other tax-efficient arrangements, you would most likely pay:
- 0% on the first £12,570
- 20% on the portion between £12,571 to £50,270
- 40% on the final £9,730.
As you can see, the tax on your income can be quite considerable. Fortunately, there are a couple of options available if you want to reduce your Income Tax bill.
The first is to make additional pension contributions. You can receive tax relief on money you contribute to your pension, which essentially refunds the Income Tax and contributes it to your fund instead.
You can also consider tax-efficient savings and investment vehicles. For example, holding money in a Cash ISA shields your savings interest from Income Tax. You can contribute money to an ISA up to an annual allowance, currently standing at £20,000 in the 2023/24 tax year.
Furthermore, certain investments come with tax-relievable benefits, such as Venture Capital Trusts (VCTs) or the Enterprise Investment Scheme (EIS).
These investments are typically higher risk, as they involve investing in smaller companies that are more likely to fail. In return for this, you can receive Income Tax relief on a portion of your investment.
Remember: you will need to be comfortable taking on additional risk with your money if you want to explore using VCTs or the EIS. It can be sensible to seek advice first if you are interested in these options.
2. Capital Gains Tax
You may have already read our previous article about Capital Gains Tax (CGT), and some of the methods you can use to reduce the impact it can have on your wealth.
You might incur a CGT bill when you come to sell (or “dispose of”) an asset. That could include investments, such as stocks and shares held outside of an ISA, or material possessions, such as art or jewellery.
This tax is only charged on the gains you have made. For example, if you bought non-ISA stocks and shares for £10,000 and sold them for £15,000, only the £5,000 increase in value would be potentially liable for CGT.
Before tax is due, you also have an Annual Exempt Amount, allowing you to generate tax-free gains. This stands at £6,000 in the 2023/24 tax year, and will fall to £3,000 from April 2024.
As a rugby player, CGT is probably most likely to affect you in later life after your playing career. That is because this is the period when you might look to liquidate assets and make use of the value, potentially triggering a tax charge.
To prevent this, ISAs can again be an effective tool. Investments held within a Stocks and Shares ISA are not subject to CGT when you come to dispose of them.
It is important to bear in mind that your annual ISA allowance (£20,000 in 2023/24) covers all your ISAs. So, if you save £10,000 into a Cash ISA, you could only save a further £10,000 into a Stocks and Shares ISA in the same tax year.
Meanwhile, you could also make careful use of your Annual Exempt Amount. You could make sure you sell investments each tax year up to the tax-free threshold.
Additionally, as each individual has an Annual Exempt Amount, your spouse or partner could also hold assets in their name, effectively “doubling” your exemption. You could then dispose of assets between you each year up to the limit without incurring a tax charge.
3. Dividend Tax
Dividend Tax applies specifically to any dividend income you receive. This could be from:
- Investments not held in an ISA
- Companies you own, such as if you have an image rights company or a management company for a property portfolio.
The rate of Dividend Tax you may face depends on your Income Tax bracket. The rates for the 2023/24 tax year are shown in the table below:
Before Dividend Tax is due, you do have a tax-free Dividend Allowance. This stands at £1,000 in 2023/24, and is set to fall to £500 in April 2024. Any dividends you earn above this amount could then be liable for Dividend Tax.
Again, holding your investments in an ISA can be an effective choice, as dividend income earned on stocks and shares you hold in an ISA will be free from tax.
Then, similarly to the CGT Annual Exempt Amount, you can make use of your Dividend Allowance strategically alongside your spouse or partner. If you both hold investments generating dividends, or receive dividend income from your companies, you would each be able to make use of the Dividend Allowance.
Get in touch
If you would like advice on how to make your money as tax-efficient as possible, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCT) are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed.
Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that is close to the value of the underlying assets.
Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.
