The end of the tax year is just weeks away, with Easter falling on 2nd to 5th April there is less time to treat your finances to a tax efficient makeover. Here are our top tips for tax saving.
- Use up allowances for tax free savings. Adults can save up to £20,000 a year in an Individual Savings Account. Children may save up to £9,000 a year. 16-17-year olds may double up to fund a cash ISA up to £20,000 alongside a Junior ISA or Child Trust fund with £9,000. 18-39-year olds can use £4,000 of their allowance within a Lifetime ISA and get a 20% bonus on their savings from the taxpayer.
- Saving in a pension scheme will provide income tax relief on savings at the highest rate of tax payable. This makes every £8 saved worth £10 for nil and basic rate taxpayers and reduces the cost of saving £10 to £6 and £5.50 for higher and top rate taxpayers. *Up to £40,000 a year can be eligible for tax relief, depending on employment status and earnings for UK residents from birth to age 75. Pension savings also reduce other taxable income and can result in further tax savings for those taxpayers just above the £50,000 and £100,000 thresholds, above which other tax breaks are reduced.
- Charitable donations under the gift aid scheme reduce the taxable income of the donor with higher and top rate taxpayers able to claim additional relief. Gift relief can be claimed in the year the donation is made or carried back to the previous year.
- Use up your capital gains tax allowance of up to £12,300 to realise gains and losses within an investment portfolio or on the sale of other taxable assets such as land, second homes, valuable antiques, and artwork.
- Review the ownership of assets and investments within the family. Where couples have a different income tax rate, or one has unused allowances for capital gains, tax free savings allowance or tax- free dividends, changing the ownership may result in a lower overall tax bill. Married couples and civil partners can do this without incurring capital gains or inheritance tax liabilities, cohabitants may need to take more care to avoid these taxes.
- Families with children may review their eligibility for tax free child benefit and Tax-Free Childcare Accounts. Once one adult earns over £50,099 child benefit is taxed but can still be claimed partly tax free until income of one adult is £60,000 or over. Reducing taxable income by saving in a pension or making charitable donations can restore tax free payment.
Tax Free Childcare helps working families of under 12s with a 20% subsidy of up to £2,000 per year, per child, on the cost of registered childcare. This includes nurseries, nannies, child minders, sports clubs and after school clubs. Eligibility ceases where one adult has income over £100,000 but they can reduce their income and restore eligibility by saving in a pension or making charitable gifts.
- Those working in their own business may receive some income tax free in addition to the usual personal tax allowances. The self employed with profits below £1,000 need not pay tax on this income so invoicing customers before or after the tax year end could be key. Those who work through a company can receive up to £2,000 of tax-free dividends and if income of £1,000 or less is derived from land or property it is not taxed.
- Income up to £12,500 is tax free and where earned income does not exceed this, the next £5,000 of income from savings is charged at the nil rate. Basic rate taxpayers can earn £1,000 of interest and higher rate taxpayers £500 but top rate taxpayers get no allowance. All taxpayers can earn £2,000 of dividends each year tax free.
- When giving to others the annual exempt allowance from inheritance tax is £3,000 per donor which can be carried forward for one year only. Small gifts of up to £250 per recipient are exempt, as are gifts made on a regular basis from surplus income, regardless of the amount.
- Married couples and civil partners, where one has income below £12,500 and the other between this and £50,000, may benefit from claiming marriage allowance. The lower income spouse/partner elects to transfer 10% of their personal allowance to the other, saving up to £250 in tax. Backdated for up to 4 years, it can be worth up to £1,180. Couples aged 85 and over may do better with Married Couples Allowance.
For personalised advice on how to cut your tax bill contact your usual LEBC adviser, email firstname.lastname@example.org, or telephone 0800 055 6585.
Public Policy Director
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
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