It may be one of life's certainties, but you shouldn't pay more
tax than you’re required to.
Tax can erode the income from your assets, whether savings,
stock market investments, or property. You're entitled to a range
of tax allowances, and it makes sense to make the most of these to
reduce the amount of tax you have to pay.
Start by making the tax system work for you. With an ordinary
savings account, any interest you earn is taxed at 20% if
you’re a basic-rate taxpayer, 40% if you’re a
higher-rate taxpayer and 50% if you’re an additional-rate
taxpayer.
By saving for a pension, you're
effectively being given tax back from the government
Here are five tips for cutting your tax bill:
1. Make the most of tax-efficient ISAs
ISAs are subject to annual subscription allowances. For the tax
year ending 5 April 2013 the maximum allowance is £11,280, of
which you can subscribe up to £5,640 to a cash ISA. You can
subscribe up to these amounts any time during the tax year, but
allowances cannot be carried forward to the following year.
2. Take out a pension
By saving for a pension, you're effectively being given tax back
from the government. Pension planning can be very tax efficient,
and stakeholder pensions can also provide an effective way of
saving for grandchildren.
3. Consider your tax status
If you are married, or hold joint savings with a partner, and
they pay less tax than you (or none at all), then you could
consider transferring cash to an account in your partner’s
sole name. Interest on such an account can be paid gross if your
partner’s total income is less than their personal tax
allowance.
4. Invest in National Savings
The Government backed National Savings and Investment scheme
offers indexed linked and fixed interest savings certificates
together with premium bonds – all of which are exempt from
tax.
5. Reduce your Capital Gains Tax
When you sell or give away an asset which has gone up in value,
you may be liable to pay Capital Gains Tax. Some assets, such as
your main residence, are exempt. Moveable items such as jewellery,
works of art or furniture are also exempt if the item is worth
£6,000 or less.
Gains on disposing of other assets, such as a second home,
stocks and shares or business assets, are not exempt. However, no
tax will be payable if your net (after deducting losses) gains for
a tax year are less than your annual allowance. The allowance for
the 2012/13 tax year is £10,600. Your unused annual allowance
cannot be carried forward to cover gains in future years.
Where capital gains are exposed to tax, the rate charged will
depend on the level of your taxable income. Where the aggregate of
your taxable income plus taxable gains amounts to less than the
basic rate band, (£34,370 for 2012/13) you’ll pay tax at
18% on those gains. If your taxable income aggregate, together with
any gains, exceeds £34,370, your gains will be taxed at
28%.
If you don't usually complete a tax return, but wish to report
gains or losses, contact your local Tax Office.
Using your CGT allowance effectively can be a very useful tool,
especially if you currently pay income tax at the higher rate. Our
financial advisers can provide
guidance as to the most appropriate way.
The value of tax treatment will depend on your individual
circumstances and may be subject to change in the
future.
The value of investments could go down as well as up,
meaning you could get back less than the amount you originally
invested. You should plan to invest over the medium to long term,
at least 5 years as a minimum.
Some pensions have a fixed term or may not be accessible
until you reach your retirement age.
