Pay less tax
You can’t avoid tax altogether, but be smart and you can make some significant savings on your yearly tax bill.
First, you should ensure that you’re not paying too much income tax. Many of us have the wrong tax code. This affects your personal allowance and therefore how much tax you are paying. Go to the HM Revenue and Customs site website to check if you are being coded correctly.
And if you’ve earned less than your allowance in a tax year, but still been taxed (this happens a lot), you’re due a rebate. Again head to the HM Revenue and Customs site.
Interest on savings is taxed at 30%. But if you aren’t a tax payer you shouldn’t be paying this (this applies to children and the retired mainly). Get an R85 FORM from your bank or building society to claim your interest tax free.
And there are tax free savings vehicles. Open an ISA account and you can put £3000 a year away in cash, plus £4000 in the stock market … or just put £7000 into shares. It’s madness NOT to use at least a cash ISA if you are saving money elsewhere.
Offset mortgages, such as the Virgin One account mean that rather than putting your money in a savings account (earning you interest on which you have to pay tax) you pay off a chunk of your mortgage instead, THEREBY SAVING INTEREST YOU WOULD HAVE PAID … and that’s tax free. There’s also the long-term benefit of course – that you’ll pay off your mortgage more quickly.
You may have used your entire tax free allowance … but has your other half? If you’re a higher rate taxpayer but your partner isn’t working, then giving your money to them to invest (it must be in their name) could save you a packet. Of course you have to be able to trust them to give the money back!
Pensions are a great way of grabbing a tax bonus back from the Chancellor. They give you the tax back, so basic rate taxpayers only pay £78 for every £100 invested in their pension. Higher rates taxpayers get an even better deal, paying just £60 for every £100 that goes into the pot.
Be a charitable giver using Gift Aid, and the charity gets an extra £2.80 for every £10 you donate. And higher rate taxpayers can claim back £2.30 tax relief too.
Make a will – it might not seem important right now, but inheritance tax kicks in at just £300,000, less than the value of many of our homes. Leaving a rock solid will can avoid complications later.
