Tax Saving Tips
Published / Last Updated on 07/07/2019
Save Tax Tips
Market Linked Savings:
- ISAs: Use your full annual ISA allowance – Shelter stock market investments in ISAs, or moving savings from an ordinary deposit or savings account to an ISA. Moving even just the money that you have in a bank deposit account into cash based ISA can help save tax. Transfer Shares into a Shares ISA - you can own individual shares in an ISA too and then your shares become tax free.
- Friendly Society Accounts: Everyone, including children, has a calendar year tax-free friendly society allowance of £270. You are allowed to save £25 per month or up to £270 as a lump sum in a Friendly Society Plan with no liability to tax. Parents can save on behalf of themselves and their children and save tax.
- National Savings & Investments as additional tax-free savings options. There are many types of National Savings Products to suit people of all ages whether children, working, not working or retired that pay no tax.
- Investment Bonds: Up to 5% a year ‘income’ can be taken from an investment bond with the tax deferred for 20 years. There is no need to declare this an income and if you are a taxpayer now – you may pay no tax if you are a basic or lower rate taxpayer at the 20th anniversary. This is especially attractive for Higher Rate Tax Payers – who may be Basic Rate Tax Payers in twenty years. It is also attractive for pensioners, as investment bond ‘income’ below 5% does not reduce the additional personal (age) allowance.
- Tax Relief: If you are working, by paying into a pension you save up to 20% tax relief on personal contributions and if you run a business, your company can also save tax and national insurance by paying into a pension for you.
- Higher Rate Tax Payers: If you pay 40% or 45% income tax, you are able to obtain tax relief on contributions within certain limits on payments that you make to pensions. £100 in your pension fund may actually cost you just £55 or £60.
- Carry Forward Relief: Did you know that if you did not use up for your full pension annual payments allowance you can go back up to 3 years and claim that unused tax relief back meaning you can pay even more into pensions and will benefit all the new rules coming soon on pension flexibility.
- Inheritance Tax Planning for Pensions: Your pension can be left inheritance tax free to your legal spouse when using flexible pensions to whom you choose. The ability to leave your pension fund on death as a tax free legacy to children, means pensions are the new vogue investment. Pay in, get tax relief, leave as a legacy.
- No Tax Relief Shares Income: There is a new £5,000 tax free dividend allowance, why get taxed on savings when you may get dividend income tax free.
- If you do not work, have children, grandchildren or are retired (below age 75) consider saving in a Stakeholder pension. These people can have invested for them up to a maximum of £2,808 this year by somebody else. With tax relief of 28p for every £1 saved, the government make this up to £1.28. If you invest the full allowance of £2,808 this gets tax relief of £792 worth making a pensions savings pot with tax relief of £3,600.
- Non Tax Payers and Children: You pay tax on interest received from a Bank or Building Society accounts unless it is in a special tax-free account. Make sure you complete a R85 form to ensure that interest is paid with no income tax deducted.
- Joint Accounts: If one of you does not pay tax, talk to the bank or building society about only paying tax on the interest on half the amount or better still, change the savings account into the name of the non-taxpayer only.
- Higher Rate Tax Payers: You pay higher tax on income from savings interest, dividends, unit trusts and many others, which are claimed via self-assessment. Again, consider saving in Investment Bonds. Income Tax can be deferred for up to 20 years. In 20 years you may not be a higher rate taxpayer and may reduce or completely avoid paying tax at that time.
- Children and Adults: A child or adult can receive up to £70 interest per year tax free from National Savings ordinary savings accounts. Why pay tax on interest? Don't forget the Adult and Junior ISA allowances too!
- Parents: Can make gifts of money into children’s savings accounts. Gross interest of up to £100 per parent is allowed on the individual child's savings account that is not taxed as if it were the parents’ income.
- Grandparents: Gifts to children of money from anybody else other than parents e.g. grandparents. There is no limit on the amount of interest that can be paid which does not affect the income tax position of the person giving the money.
Capital Gains Tax:
- Tax Free Allowance: Each year use your gains Allowance of £11,000. You can realise gains/profits of this amount and not pay up to 28% tax on the gain.
- Losses: If you have made losses you can offset these against gains or carry them forward indefinitely.
- Second Properties: You are liable to CGT on the sale of any second property - with careful changes in ownership of the property and perhaps making it your permanent home for a period – you could slash the tax bill due.
- Gifting: £3,000 annual gifting allowance. You can make gifts to whoever you choose each year to reduce your inheritance tax bill. You are allowed to carry over any unused allowance for 1 year. So if you did not make a gift last year, you can gift £6,000 this year. You can also give up to £250 to as many other people as you like.
- PETs: Potentially Exempt Transfers. You may be able to gift more than £3,000 each year and provided you live for 7 years, it may save inheritance tax.
- Trusts: Put your life insurance policies in trust. Any benefits on death are paid out more quickly to the people you care about. Using trusts for investments can also reduce your inheritance tax bill.
Tax Returns and Benefits:
- Self-Assessment Filing: People waste hundreds of pounds each year by not completing their return in time.
- 6 Million Tax Codes Were Wrong in 2010: Check the tax code on your payslip and with your Inspector of Taxes. It is staggering how many people are issued the wrong tax code every year meaning we pay more tax.
- Non-tax payers: Contact the HM Revenue and Customs and ensure that you claim back any tax that you may have paid.
- Irregular Income: If you are retired or receive irregular income from pensions, bank and building society accounts and/or investments. Contact your tax office to see if you are due a refund. You can even go back 6 years. HMRC will send you a short form to complete and return - it can't hurt!
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