10 tax saving tips to make more of your money
1. Tax-sheltered ISA wrappers
Hold higher yielding investments in tax-sheltered ISA wrappers. On 6 April 2010, the annual Individual Savings Account (ISA) subscription limit rose to £10,200. The whole sum can be placed in a stocks and shares ISA or, alternatively, up to half can be put into a cash ISA and the remainder into a stocks and shares ISA. So for a couple, this represents £20,400 savings protected from capital gains or income tax. Make sure you use your entire allowance, as it can’t be carried over into the next tax year.
2. Claim tax relief on your pension
Utilise remaining pension contribution allowances in 2010/11 where higher-rate income tax relief is available. Currently, if you pay higher-rate tax but earn less than £130,000, HM Revenue & Customs (HMRC) will give you £40 tax relief on every £100 saved. People with earnings can invest up to 100 per cent in their pension each year up to a current annual limit of £255,000. The lifetime investment allowance is £1,800,000.
3. Make a will to minimise an inheritance tax bill
If you pass away without making a will, HMRC rules dictate how your estate is divided up. Yet if you do make a will, not only can you have a say over who gets what, but you can also minimise the inheritance tax (IHT) payable. Any amount you leave above £325,000 (2010/11) will be taxed at 40 per cent. However, some gifts, such as money left to charities or paid into trust funds for children and grandchildren, are not taxable. A little planning goes long way in reducing this tax liability.
4. Capital gains tax
Utilise capital gains tax allowances, worth £10,100 (2010/11) per person, and consider transferring assets to spouse/civil partner as necessary.
5. Shelter income-producing assets
Transfer non-tax sheltered income-producing assets to lower-rate taxed spouses/civil partners. By transferring assets from one spouse to another, couples could pay less tax. Many partners hold joint savings. But if your income differs, it may be more sensible from a tax perspective to move assets into the sole name of the individual on the lower tax band.
6. Enterprise investment schemes
If you subscribe for new shares in an enterprise investment scheme, you receive 20 per cent income tax relief on the amount subscribed up to a limit of £500,000 (2010/11) a year, as long as you hold onto the shares for three years and have paid enough income tax.
7. Don’t lose out on interest
Savings interest usually has 20 per cent tax deducted before the saver receives it. But anyone over 16 whose income is less than their tax allowance does not have to pay income tax on their savings. If you have children who are not working and have a savings account, then they should complete HMRC form R85 to ensure that they are paid gross interest, that is, without tax being deducted.
8. Check your tax code
Your personal tax code is critical to working out how much tax you should pay. Yet HMRC’s shift to a new computer system earlier this year saw thousands of erroneous codes sent out. Now more than ever, it’s vital to check your payslip to make sure your salary is stated correctly and that you are being taxed at the appropriate rate.
9. Tick for Gift Aid
Whether you are sponsoring somebody raising money for charity or donating through the payroll, make sure the Gift Aid box is selected so that the cause gets the full, tax-free amount. Charities take your donation – which is money you’ve already paid tax on – and reclaim the basic rate tax from HMRC on its ‘gross’ equivalent – the amount before basic rate tax was deducted.
10. Trading losses
Freelancers and other self-employed individuals who make a loss can set the loss against income in the year of the loss or carry it back to the previous year. In addition, losses that arise in the first four years of the business can be carried back up to three years. Claims to carry back losses in 2008/09 must be made by 31 January 2011.
The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.