Tips For Trimming Your Tax Bill
Have you been affected by the recent tax reforms? Or any of the sweeping tax changes that have been introduced by the government in the last four and a half years? These tips, compiled by Manchester accountants Alexander & Co., could help you trim your tax bill:
There are 4.4 million taxpayers in the UK paying 40pc and that number is probably set to rise as the thresholds have been frozen. So you need some astute planning to make sure you only pay the right amount of tax and make savings where possible.
Use Your Isa Allowance
Now there’s a bigger allowance for your Isa, don’t forget to use it.
Anyone aged 18 or above can invest up to £15,000 a year (up until April 2015) and receive all their interest or returns tax-free. This can be split between cash and stocks and shares as you see fit, with an instant Isa being the most easy to manage.
If you have children or grandchildren, you can also make tax-efficient savings for them by opening up a Junior Isa in their name. You can then invest up to £4,000 (in this tax year) per child aged under 18.
Use Pension Contributions to Keep Child Benefits
According to data from the Institute of Fiscal Studies, 1.1 million families have been affected by the child benefit reforms introduced in 2013. If you fall into that category, here’s a tip that could mean you circumnavigate the changes:
Nowadays child benefits start to be reduced once one person in a couple’s salary goes above £50,000 and taken away entirely once your salary reaches £60,000.
But you can actually still claim child benefit even if your earnings exceed the £50,000 threshold. All you have to do is deduct the money you contribute to your pension from your salary to get yourself under the limit.
If you want to keep child benefit for two children (which comes in at £1,750 a year, or £70 per child per month), you just need to increase your contributions into your company pension with a voluntary contribution, or pay into a self-invested personal pension (SIPP).
For example, if you earn £50,500 before tax and pay an additional £1,500 into a pension so that you have a taxable income of £49,000, you are only giving up £900 of real income after 40pc income tax relief – and you keep all your child benefit.
Don’t Be One of The 60 Percenters
You can use a similar method if you are one of the unfortunate/fortunate people to fall into the 60pc tax band.
This tip only applies to those who earn between £100,000 and £120,000, a very small minority of the UK’s population.
As soon as you earn above £100,000 you start getting deductions from your tax-free personal allowance of £10,000. You lose £50 of the allowance for each £100 you earn above £100,000, so the whole allowance is lost if you earn £120,000.
As with child benefit, you can eschew this tax by managing your taxable earnings to come below £100,000 through pension contributions. Granted, you have to make significant pension contributions if you are nearer the £120,000 region. but you’re not technically losing this money.
Spouse It Up
From April next year, basic-rate taxpayers (20% of your taxable income is deducted from your salary) will be able to transfer up to £1,000 of their personal allowance (£10,000 for everyone) to their spouse or civil partner. So if you earn £30,000, and your spouse earns below the personal allowance you can top up their allowance to £11,000 if you wish. In real terms this only means £100 roughly extra a month.
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