No one in the UK likes paying the taxman. So here's how to pay less tax!
Research by professionals claim we’ll collectively gift the taxman £12.6 billion, or £421 per taxpayer, this year. Tax Action reports highlight ten examples of tax wastage, either benefits we’re not claiming or tax breaks we’re not using. Some of the biggest area of wastage in the report highlight income-related tax credits, which include Child Tax Credits, Working Tax Credits and Pension Credits. The public's failing to take advantage of the tax relief available on pension contributions is the second biggest waste, with not using tax relief on charity donations third. Here are the top ten list of biggest tax wastes: List of Tax wastage and their amount of wastage: Income-related Tax Credits: £7.26 billion Tax relief on pension contributions: £2.45 billion Tax relief on charity donations: £997 million Savings on Inheritance Tax: £448 million Making use of ISAs: £403 million Child Benefit: £401 million Avoiding penalties for late filing of tax return: £307 million Savings on Capital Gains Tax: £133 million Making use of Employee Share Schemes: £118 million Income tax and Personal Allowances: £83 million Total: £12.6 billion Source: unbiased.co.uk So it should become clear where you’re paying tax unnecessarily, So to help we at Tac Affinity Accountants are going to show you six ways you can stop wasting your money and pay less tax. 1. ISA Have an ISA One problem with saving money in a standard savings account is that you have to pay tax on any interest you earn on those savings. And with interest rates so low on many savings accounts right now, this really is the last thing we all need. Related how-to guide Cut your tax bill by thousands Tax may be an inevitable fact of life, but there’s no reason to pay more than you have to! So to avoid this, make sure you invest in an ISA. This is a tax-free way of saving and you can invest up to £10,680 in an ISA each tax year. You can invest the full amount in a stocks and shares ISA, or you can split your investment between a cash ISA (up to £5,430) and a stocks and shares ISA. You can also stash tax-free cash for your children by opening a Junior ISA (up to £3,600 during the current tax year) or by saving into an existing Child Trust Fund (the savings limit on these have now been raised to £3,600 a year in line with the Junior ISA limit). We took a look at the top Junior ISAs on the market at the moment inthe article Your child could earn 6% from an ISA. Or you could consider starting a pension for them. Find out more about all these tax-efficient savings options for children in Top tax havens for babies, children and teens. 2. Pension. By using a pension to save for retirement, you’ll also avoid paying tax. That’s because your pension contributions qualify for tax relief. So if you’re a basic rate taxpayer, you’ll qualify for tax relief at a rate of 20%. Meanwhile, higher rate taxpayers qualify for tax relief at a rate of 40% and additional rate taxpayers will get 50%. So pensions are a great way to build up a tax-free nest egg for your retirement. That said, once you start to claim your pension income, you will have to pay income tax. You should note that the amount you can contribute to your pension is now limited to £50,000 a year. 3. Partner If you’re a taxpayer, but your partner isn’t, a great way to save tax is to transfer any income producing assets to his/her name and receive the lower tax rate by using his/her personal allowance. Your personal allowance is the amount of money you can earn before having to pay tax. The list below shows the personal allowance for the current tax year and next: Personal allowances Personal allowance 2011/2012: £7,475 2012/2013: £8,105 Allowance for those aged 65-74 2011/2012: £9,940 2012/2013: £10,500 Allowance for those aged 75+ 2011/2012: £10,090 2012/2013: £10,660 4. Tax Code Your employer uses a tax code to calculate how much tax should be deducted from your pay. But how many of us actually bother to check our tax code to see if it’s correct? Your tax code is made up of a few numbers and a letter. If you multiply the numbers as a whole by ten, that’s how much money you can earn before you start paying tax. The most common number is 747, as for most people it’s only once you earn more than £7,475 that you start paying tax. Meanwhile, the letter refers to your tax status and how that affects the preceding number. The most common letter is L, meaning you qualify for the basic personal allowance. If you check your tax code and you think there’s been a mistake, you need to contact your tax office. In some cases you can claim up to £1,300 of your tax back. 5. Give it away In each tax year, you can gift up to £250 to as many people as you like, completely free of inheritance tax. Just bear in mind you can’t give a larger sum of money and claim exemption for the first £250. You can also give away £3,000 in total each tax year and if you don’t use your full allowance, you can carry it over into the next tax year. However, you can’t combine this £3,000 allowance with a £250 gift to the same person. Wedding or civil partnership ceremony gifts are also exempt from inheritance tax – although there are limits to this:
Gifts to UK charities are also tax-free. So its worth finding out how to cut your tax bill without the effort of complex tax planning. 6. Capital Gains Tax allowance Each of us has a yearly capital gains tax (CGT) allowance (£10,600 in 2011/2012), so only gains above this band will be liable to CGT. In other words, each of us can make profits of £10,600 each tax year from selling assets or investments before we have to pay tax. Any profits made above this level will be subject to tax at 18%, or 28% if you’re a higher-rate taxpayer. So each year, before the tax year end, consider selling assets to use up your allowance and make a tax-free profit. It’s a good idea to spread this over a couple of years to make the most of your allowance. For example, if you sold some shares today and then more on 6 April 2012, you’d be able to take advantage of two years’ CGT allowances totalling £21,200. Don’t forget that children also have a CGT allowance of £10,600, so if they hold an investment they can make tax-free profits up to this level each tax year. Tax Affinity Accountants are experts in tax and accounting. For more interesting articles and help visit www.taxaffinity.com. Please feel free to comment and share this with your friends. Still wondering about what the key things to come out of the Chancellor's budget were for you and your business? - Well read on...
Income tax The threshold at which people start paying income tax is to be raised to £10,000 in 2014 - a year early - an increase in the threshold of £560. State of the nation The Office for Budget Responsibility (OBR) has forecast growth of 0.6% this year, half of what it said it would be in December. But the OBR predicts the UK will escape recession this year. After that, growth is predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017. Home-hunters Home buyers wishing to buy a new home worth less than £600,000 are to be given assistance. As long as they have a 5% deposit, the government will stump up an extra 20% - repayable when the house is sold. Help for business Chancellor George Osborne announced that corporation tax will be cut by 1% to 20% in April 2015. This, Osborne said, will make the UK's corporation tax the lowest of any major economy in the world. The UK, he added, is "open for business". Elsewhere, the Chancellor said some 450,000 small firms will pay no employer National Insurance. Osborne also said stamp duty on AIM shares will be abolished from next April, in a move which he said will benefit hundreds of small business in the UK. The government will give capital gains tax (CGT) relief on sales of businesses to their employees. Youngsters The government confirmed it will consult on options for transferring savings held in child trust funds (CTFs) into Junior ISAs. The move will offer a lifeline to six million children. Junior ISAs were introduced in November 2011 as an attempt to encourage saving for children, following on from the abolition of CTFs at the beginning of that year. Tax avoidance The Isle of Man, Guernsey and Jersey are to enter tax information exchanges with the UK that will significantly increase the amount of information automatically exchanged on potentially taxable income, in order to identify and tackle evasion. The move aims to recoup £3bn in unpaid taxes. Additionally, the government will remove the presumption of self- employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs and counter the artificial allocation of profits to partners (in both LLPs and other partnerships) to achieve a tax advantage. The measures, the government forecasts, will in total raise over £4.6bn in new revenue over the next five years. Pensioners As previously announced, the single flat-rate pension of £144 a week is to be brought forward a year to 2016. This will end contracting out of the State Second Pension, so that everyone will pay the same rate of national insurance contributions and build up access to the same single-tier State Pension Cap on social care costs confirmed at £72,000. The government has also pledged to make £5,000 ex-gratia payments to Equitable Life policyholders who were too old to be eligible for compensation payouts. The government is not obliged to do it, Osborne pointedly said, but it is "the right thing to do". Borrowing Borrowing will be £114bn this year and is set to fall to £108bn, £97bn and £87bn in following years. The deficit has been cut by a third since May 2010. Borrowing as share of GDP is to fall from 7.4% in 2013-14 to 5% in 2015-16. Debt as a share of GDP will increase from 75.9% in 2012-13 to 85.1% in 2015-16. Inflation The 2% Bank of England target is to stay in place, the Chancellor said, though its remit is to be changed to focus on growth as well as inflation. Tax Affinity Accountants are experts in Tax and Accountancy in the borough of Kingston upon Thames. Please feel free to comment or share this article with your friends. For more information visit www.taxaffinity.com. And follow us on twitter to find more tax saving tips @tax_affinity The Treasury expects to raise over £4 billion from Capital Gains Tax (CGT) from the last tax year - 15% more than the previous year. In our view the main reason for this rise is the number of investors paying CGT at a higher rate has increased.
CGT is payable at 18% if you're a non-taxpayer or basic rate taxpayer, or 28% if you're a higher or additional rate taxpayer. Remember, CGT is payable when you realise profits in excess of the annual allowance (£10,600 in the current tax year). One of the simplest way to protect your investments from any future CGT liabilities is to shelter them with an ISA. Once held with an ISA there is no further tax to pay on any investment income, and no tax to pay on gains. Each tax year you have an ISA allowance. If the allowance is used every year it offers the opportunity to build a significant portfolio of tax sheltered assets in the long run. This year the ISA allowance has risen to £11,280, that means a couple could shelter as much as £22,560 in ISAs. Tax benefits of Stocks & Shares ISAs For those who already hold investments showing substantial gains there are some simple steps you can take to reduce, or even eliminate completely, any CGT liability. Please note tax rules are subject to change, and the benefits of tax shelters will depend on your circumstances. 1. Offset losses against your gains If you sell an investment and make a loss, the loss can be offset against any gains you have made in the same tax year. If your losses exceed your gains, you can register the losses on your tax return to offset against future gains. 2. Sell when you pay tax at a lower rate The rate of capital gains tax is based on the rate of income tax you pay so your CGT bill will be lower if you realise gains when your income is lower. If you know your taxable income will fall in the future, perhaps due to retirement, you could consider delaying selling until then. However you should always look at your investment objectives and merits first and look at the tax benefits as an added bonus. 3. Transfer to your spouse and pay less tax You can normally transfer investments between spouses without an immediate tax charge. This means a married couple (or those in a registered civil partnership) can use both their annual allowances to make gains of £21,200 this tax year without paying CGT. If your spouse pays tax at a lower rate than you, you could transfer the investments into their name before selling to benefit from CGT at the lower rate. 4. Reduce your taxable income Because the rate of capital gains tax you pay is linked again to the rate of income tax you pay, reducing your taxable income could reduce the amount of capital gains tax you pay. The easiest way to do this is through tax shelters such as ISAs - income from an ISA is free from further tax. In some cases you might be able to reduce your taxable income for a particular year - perhaps by transferring income-bearing assets such as cash deposits, to your spouse. 5. Use your pension to reduce capital gains tax A pension contribution can also be used to reduce capital gains tax liability for many investors by taking advantage of the tax relief on the contribution. Effectively your basic rate tax band is increased by the amount of the pension contribution, meaning larger gains might be realised before the higher rate of capital gains tax is payable. For example, a pension contribution of £3,600 will extend your basic rate tax band from £42,475 to £46,075. Providing your taxable income and gains are less than £46,075 in this tax year, you will pay capital gains tax at 18% and none at 28%. Find out more about Capital Gains Tax and how Tax Affinity Accountants can help you visit our website and arrange an a free initial consultation. Please remember all stock market investments can fall as well as rise in value so you could get back less than you invest . Tax Affinity Accountants based in Kingston upon Thames are experts in advising the public in all matters to do with tax and accounting. In the current economic climate everyone should be looking for ways to save tax. And to help, we at Tax Affinity Accountants have compiled a list to do just that.
The tax codes, allowances and deadlines 1. Tax code Check your tax code each year (the numbers and letters on your payslip). If you're on the wrong code, you may be paying too much tax. 2. Capital gains tax allowance Remember that capital gains under £10,600 are tax-free. Married couples and civil partners who own assets jointly can claim a double allowance of £21,200. CGT is charged at 18% if you are a standard rate taxpayer, and 28% if you pay tax at a higher rate. 3. Tax return deadlines Don’t miss the 31 October deadline if you want to make a paper tax return. You can do your tax online up to 31 January, but paper tax returns need to be in three months earlier than online tax returns to avoid a £100 fine. 4. Annual investment allowance If you are a landlord or run your own business, take advantage of the annual investment allowance (AIA) to claim for capital expenditure on items such as tools and computers. You can claim relief on up to £25,000 a year. How to pay less tax if you're self-employed 5. Tax-deductible expenses If you’re self-employed, don’t forget to claim all your tax-deductible expenses, including cash expenditure where eligible. 6. Self-employed car costs If you're self employed, you can claim the running costs of a car, but not the cost of buying one. If you use the same car privately, you can claim a proportion of the total costs. 7. Cash-flow boost for self-employed If you are setting up as self employed, you may be able to improve your cashflow by choosing an accounting year that ends early in the tax year. This maximises the delay between earning your profits and your final tax demand. 8. Annual losses If you are self employed, you can carry forward losses from one year and offset them against profits from the next. See our page on when the self-employed pay tax for more. 9. Payments on account If you are self-employed and expect to earn less in 2012-13 than you did the year before, apply to reduce any payments on account that HMRC ask you to make. Saving tax on property income 10. Rent a room Rent a room relief is an optional scheme that lets you receive up to £4,250 in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home. 11. Landlord's energy-saving allowance If you rent out property you can claim special tax allowance of up to £1,500 for insulation, draught proofing and installing a hot water system. 12. Landlord's expenses If you rent out property, you can deduct a range of costs before declaring your taxable income. These include the wages of gardeners and cleaners, and letting agency fees. 13. Tax relief on your mortgage You can claim tax relief on the interest on a mortgage you take out to buy a rental property – even if it the rental property is abroad. 14. Reduce capital gains tax (CGT) on a rental property Landlords are normally liable for CGT when they sell a rental property. If it has been your main home at some time in the past, you can claim tax relief for the last three years of ownership. Pay less tax on savings and investments 15. Isa allowance Use your tax-free Isa allowance. This year, the overall limit is £10,680, of which £5,340 can be put into in a cash Isa. 16. No CGT on shares held in an Isa There is no capital gains tax to pay when you sell shares or units held in an Isa. For more details see Tax on savings and investments. 17. Junior Isas Use Junior Isas or Children’s Bonus Bonds to avoid being taxed on gifts you make to your own children. 18. Transfer assets Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. See our guide to tax and your partner for more information. 19. Children's savings Stop children being taxed at source on their savings by completing a simple form (R85) on their behalf. Tax savings for older people 20. Age-related allowance If you are aged 65-plus you may be eligible for an increased personal allowance. This means you pay a lower income tax rate. See Tax in retirement. 21. National Insurance Make sure you stop making National Insurance contributions if you carry on working beyond state retirement age (currently 62 for women and 65 for men). 22. Gift Aid If you are over 65, making donations to charity through Gift Aid can reduce your taxable income to below the threshold at which you start to lose out on age-related allowances. 23. Tax relief on gifts If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations. 24. Inheritance tax Lifetime gifts are not normally counted as part of your estate for inheritance tax purposes if you live for a further seven years after making them. Known as potentially exempt transfers (PETs) they can reduce your residual estate significantly. See our blog on inheritance tax. Tax savings through employee benefits 25. Season ticket loan If you are a commuter, check to see if your employer will give you a tax-free loan to buy your season ticket. 26. Pool cars Use a pool car for occasional business travel, if your employer provides these. 27. Childcare schemes and tax credits If you are an employee and pay for childcare, ask your employer if they have a childcare scheme. Salary sacrifice childcare schemes are easy to establish and can result in substantial savings for both employees and employers. For more details see working for an employer. Child tax credits can also save you money. 28. Company car? If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead. 29. Going green If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price, than cars with a high CO2 rating. 30. Pay in to a pension scheme Contributions to your employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. For the most up to date and accurate advice speak to tax accountant, as these allowances and benefits do change every year. Tax Affinity Accountants are expert Qualified Tax Accountants in Kingston upon Thames. To read more visit www.taxaffinity.com/blog and please feel free to comment and share this with your friends. |
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