Paying less tax
Annually we notch up about £9bn1 in unnecessary tax payments. That's cash we could have kept with some smart financial planning. Here are some wise ideas to help you pay less:
Take advantage of ISAs
Use your ISA allowance of £10,680 for the tax year 2011-2012 with up to half that in cash.
Build up an emergency fund with the cash component, and consider leaving the rest in equity funds to have the opportunity for growth, tax efficiently, for the years ahead.
Think about the whole family. Children have tax-free allowances too, and the Government is now proposing a Junior ISA savings system for August 2011, with parents able to make capped contributions.
Make the most of your pension
If you're already paying into a pension, try to increase your payments as and when you can; or pay in a lump sum after a windfall, such as after a bonus or inheritance. Remember, the government pays in every time you do.
Consolidate existing pensions. You may benefit from having only one set of charges and less paperwork. If you've worked in a number of jobs, you may have two or three company pensions in your name. Track them down through the Pension Tracing Service.
Transferring is not suitable for everyone and you should take advice before making any final decision.
Share your allowances
Save on tax by sharing your Income Tax Personal Allowance with your spouse - the amount you can earn tax-free each year - between you. It's currently £7,475 per person.
Shift assets into the lower paid spouse's name, and pay income tax or capital gains at a lower rate.
Consider offshore bonds
Unlike UK onshore bonds, where you pay tax on your investment income and growth as they arise, any money you make offshore is virtually tax-free.
You pay tax when you cash in or sell, so do this later in life when you may be a lower-rate or non-taxpayer.
If you retire abroad, you could cash in your bond in a country where the tax rate is lower than in the UK.
Venture capital trusts
Consider investing in a Venture Capital Trust (VCT). A VCT is run by fund managers, which use the money to back companies to help them develop and expand. You get 30% tax relief on your investment, tax-free income and no Capital Gains Tax when you sell your shares.
VCTs are higher-risk investments. Think carefully before you commit your cash: ask yourself what level of risk you're comfortable with and can you absorb a loss?
It's important to think about tax-efficiency when you're saving or investing, but it's not a good idea to choose an investment purely on its tax breaks.
Important legal and regulator information
The value of investments, and any income from them, can fall as well as rise and you could get back less than you invest. References to legislation and taxation are based on current rules. Legislation and taxation may change in the future. All figures relate to the 2011-2012 tax year, unless otherwise stated.
Sources
- Unbiased.co.uk research March 2010
