It
is estimated that Britons waste over £4 billion a year on
unnecessary tax. Reducing your tax bill could be as simple as
knowing your tax allowances, making the most of the many tax breaks
that are available or utilising the trust laws. Take a look at
our easy-to-follow guide. |
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Are you claiming it?
If you have children, you are entitled to Child Tax Credit.
As long as your annual family income (family includes single,
married or cohabiting couples) does not exceed a certain amount,
it is yours to claim and is worth up to £545 a year for
the basic family element (complete CTC1 from the Inland Revenue).
* Are you reclaiming it?
Do you pay higher rate tax and complete a self assessment return?
If so, you could claim back 18 per cent (the difference between
the basic and higher tax rates) of the gross amount of your
personal pension/stakeholder pension contributions and charitable
donations made through Gift Aid.
* Do you check your tax code regularly?
According to the Institute of Chartered Accountants in England
and Wales (2003), one in every ten tax codes is wrong. So it
is really important that you check your tax code to make sure
that yours includes the correct personal allowance/s you are
entitled to.
* Are you saving and investing
tax efficiently?
There is a plethora of ways to save and invest tax efficiently.
These can range from the basic Individual Savings Account through
to the more sophisticated venture capital trusts and enterprise
investment schemes. Do we need to talk?
* Are you using your spouse's
allowance?
The easiest tax gap to fill is a non-working spouse's allowance.
Try not to leave their annual personal allowance, currently
£4,745 (2004/05), or the 10 per cent income tax starting
rate band untapped. You may wish to consider transferring savings
accounts and investments to your spouse's name, but remember
that you lose your rights to these savings. Similarly, you could
use the same procedure to reduce your tax bill if your spouse
is in a lower tax band than you.
* Should you give it away?
You are entitled to gift up to £3,000 a year free of Inheritance
Tax (IHT). This is a simple way to reduce a potential hefty
fixed rate 40 per cent IHT burden on assets over the £263,000
(2004/05) 'nil-rate band' threshold that pass on death. You
can gift larger amounts with no IHT payable as long as you survive
for seven years after the gift is made. A taper relief applies
to reduce the amount of any tax payable should you die between
three and seven years after making the gift.
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| Talking
tax...tips to save you more money
* See if you can claim tax relief on work expenses such
as training fees and travelling costs.
* It could be appropriate to have part of your salary
and/or bonuses paid as pension contributions instead.
But check that this doesn't affect other salary-related
employee benefits - for example, life assurance.
* Choose a company car with environment friendly low CO2
emissions. Your taxable benefit could reduce significantly.
* Should you consider any trust arrangements? A trust
is legally separate from the rest of your estate and,
as such, is taxed independently for income tax and capital
gains tax (provided neither you nor your spouse can benefit
under the trust) and IHT (provided you cannot benefit
under the trust). This may be an appropriate solution
to your situation and could take your assets out of reach
of the taxman.
* Make sure that your life assurance policies are written
in trust. This will ensure that the proceeds are paid
out free of IHT and before probate on your premature death,
which means that your beneficiaries are also paid earlier.
The
Financial Services Authority does not regulate taxation
advice.
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