10 Tax saving tips

Sunday, 15th February 2009 23:28 - by Resident IFA

Who wants to save tax? Yes, okay, a daft question. It pays to be tax wise, making sure all your financial arrangements are as tax-efficient as possible. As always, you may need professional advice from an Accountant, Solicitor, or Independent Financial Adviser (IFA) at some point. However, there are basic tax saving measures you can implement and checks you can undertake on your own beforehand. So, don’t forget those allowances HMRC (Aka the ‘Tax Man’) provides… Again, more an article than a Blog, but here goes: 1. Personal tax allowance: The amount you can earn i.e. from employment, pension, etc. before paying income tax. For the 2008/2009 tax year, it is £6,035 for those up to 65 years of age. 2. Age-related allowance: As above, but the higher allowances provided to older people. Those from age 65 to 74 have £9,030 in the 2008/2009 tax year, and those of 75 years and above have £9,180. 3. Gross savings interest: Banks and Building Societies will take tax off interest on accounts at a rate of 20% unless informed otherwise. If you are a non-taxpayer, you can receive your interest gross (untaxed) by completing and returning HMRC form ‘R85’ to the institution holding the account. 4. Capital Gains Tax allowance (CGT): Shares or Investments can show £9,600 of gain in the 2008/2009 tax year before being taxed at a flat rate of 18%. The sale of your main residence will be free of CGT and business-related sale(s), i.e. disposal, up to £1M will be taxed at a concessionary CGT rate of 10% (Sometimes referred to as ‘Entrepreneur’s Relief’). 5. Inheritance Tax (IHT): The Estate of a deceased person can be valued at up to £312,000 in the 2008/2009 tax year before Inheritance Tax is paid at 40% on the excess value. This can be increased to £624,000 (thus both allowances combined) on the second death of Spouses or Civil Partners. Gifts such as the £3,000 annual exemption can be made during life to lessen the Estate’s value, along with small gifts of £250 and specified gifts on Marriage. Gifts above £3,000 are known as ‘Potentially Exempt Transfers’ (PETs) and the IHT value of the gift starts to lessen after 3 years and is viewed as out of the Estate after 7 years so long as no benefit is still being derived i.e. living in a house after gifting it would be known as a ‘Gift with reservation’. 6. Trusts: The effective use of Trusts can lessen the IHT bill for your Dependents. Examples of this are via an Investment, perhaps a ‘Loan Trust’ or ‘Discounted Gift Trust’, or simply putting a Life insurance policy in Trust to ensure the proceeds are tax-free. 7. Business Property Relief (BPR): Another way of mitigating or lessening IHT. It reduces the value of a business when transferred (by 100%) or business property when transferred (by 50%) to another person. The basic rule is that the property must have been held for at least 2 years prior by the transferor. 8. Individual Savings Account (ISA): In the 2008/2009 tax year you can save/invest a total of £7,200 which is free of CGT and Income Tax. Dependent on the level of allowance, ISA benefits can be utilised each year, having existed since 1999. The £7,200 can be invested wholly in stocks and shares or related (permitted) investments, or instead up to £3,600 in a Cash ISA account and therefore a lesser amount of up to £3,600 in the aforementioned stocks and shares variant. 9. Tax relief on Pension contributions: Everyone, even non-taxpayers, obtain basic-rate (20%) tax relief on their Pension contributions up to £3,600, then the same on further assessable earned income. Higher-rate taxpayers can reclaim relief up to their marginal rate (40%) via their tax returns. What a great way to boost your retirement planning! 10. Rental/Buy-to-let Property: By off-setting expenditures against rental income, you can lessen your tax to pay on ongoing profits from owning this type of residential investment property. You can put such as Mortgage interest, the cost of advertising for Tenants, repair and maintenance expenses (I.e. Painting, mending broken items, damp treatment, etc.) against the income the property earns, thus legitimately lessening the tax you owe. I can’t resist borrowing a familiar phrase - 'Remember, tax doesn’t have to be taxing!’ Until next time…