Make sure you're not paying more than your fair share.
These days, understanding the tax system is not just an advantage - but a necessity. Here are a few tips that can help you reduce your tax bill.
Use your full personal allowance through a cash ISA and stocks and shares ISA
An Individual Savings Account (ISA) is an excellent tax-efficient way of saving or investing, as they provide tax efficient returns.
If you don't want to risk the value of your investment falling, a Cash ISA could be for you. This is simply a tax-free saving account that earns you tax-free interest.
Stocks and Shares ISAs are not investments in their own right; they are tax wrappers that surround an investment to provide the tax efficient returns. The value of your Stocks and Shares ISA will depend on how well the underlying investments (ie, investment funds or individual stocks and shares) perform, and whether you choose to have any income re-invested or paid out at regular intervals.
Pay into your pension
You can normally pay up to the greater of £3,600 or 100% of your earnings into a pension each year (up to the ceiling of the annual allowance). The annual allowance for this tax year 2013/14 is £40,000. Our planning your retirement tool will give you a quick estimate of the sort of income you might receive when you stop working. But if that isn't as much as you'd hoped for, there's still time to do something about it. Our living in retirement tool will also show you what your financial options are once you've retired.
Increase the amount you invest in a private pension and it won't just be you putting in money. Subject to certain limits, you'll also enjoy tax relief from HMRC on any contributions you make. As you get nearer to retirement you may want to increase this amount even further.
Basic-rate taxpayers enjoy income tax relief at 20%, which means that for every £80 you pay into your pension, you'll end up with £100 paid into your fund. Higher-rate and additional rate taxpayers receive income tax relief at their highest marginal rate. So if you're a higher-rate tax payer, you can receive 40% or even 45% tax relief this tax year on the contributions you pay, making paying into a pension even more tax efficient.
Pass more of your money on to your loved ones
Currently you can leave up to £325,000 to your beneficiaries and an unlimited amount to your spouse or registered civil partner without paying inheritance tax. But please note, if you're not married or in a registered civil partnership, that unlimited exemption doesn't apply.
Another way to reduce inheritance tax liability is to give your money away during your lifetime. You can hand over as much as you like to anyone without having to pay a single penny in tax - just as long as you do so seven years before your death. And if the amount you're giving away each tax year is £3,000 or less you won't need to pay inheritance tax on the gifts, no matter what happens to you.
You can also make small gifts up to the value of £250 to any person in any tax year as an outright gift. This exemption cannot be combined with any other and there is no limit to the number of people to whom £250 gifts can be given. Any regular gifts you make out of your net income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal standard of living. But perhaps the best tip about inheritance tax is to speak to an expert.
Check if you qualify for advice
If you have £50,000 or more in savings and investments, you may be eligible for HSBC Premier Financial Advice. See the full eligibility criteria.
If you don't qualify for HSBC Premier Financial Advice or if you'd rather not pay for advice, see other ways we can help.
*Our opening hours are Monday to Friday 8am to 9pm and 9:30am to 7pm on Saturday. Calls may be monitored or recorded.
Eligibility requirements
HSBC Premier Financial Advice is available to UK residents who have £50,000 or more in savings and investments and who are at least 18 years old at the time of the initial consultation.
You'll also need to have an HSBC Current Account or Savings Account for us to be able to deduct your fee. We can accept payment from a first direct Current or Savings Account too.
To find out more:
- See our HSBC Premier Financial Advice pages or;
- Call us on 0800 328 1298 to book an initial no-obligation consultation with an adviser. Lines are open Monday to Friday 8am to 9pm and 9:30am to 7pm on Saturday. (Textphone: 18001 0800 028 0126).
If you don't qualify for HSBC Premier Financial Advice, or if you'd prefer not to pay for advice, see other ways we can help.
If you are not a UK resident, see our HSBC Expat service.
The value of investments (and any income received from them) can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets.
You should aim to invest for at least five years. Past performance should not be viewed as an indication of future performance.
Contributions to pensions cannot normally be accessed until you take your retirement benefits.
Please be aware that the value of tax relief's will depend on individual circumstances and tax rules can change. If you are in any doubt, please seek professional advice.
