Nobody likes paying tax, so it makes sense to do whatever you can to minimise the amount of tax that you pay and take advantage of all the allowances that are available to you. Remember, most allowances apply to one particular tax year - and once it has ended the allowances are lost. That's why Thursday April 5th is such an important day.
To help you save tax and use your allowances, we've listed ten tax savings tips below. As usual, if you'd like any more information on them - or there are any details you're not sure of - then don't hesitate to get in touch with us.
- Use your ISA allowances. For the tax year ending in April 2012 you are allowed to invest up to £10,680 in an Individual Savings Account (ISA), with a maximum £5,340 going into a cash ISA. For the 2012/2013 tax year these figures increase to £11,280 and £5,640 respectively. Investments in ISAs are free of income tax and capital gains tax, so it makes sense to use them, whether you're investing in stocks and shares or you prefer the security of a cash deposit. The tax free nature of an ISA means that they will always outperform a comparable, taxed, investment - but remember, once this year tax year has ended, your ISA allowance for 2011/12 has ended with it.
- Remember to use your other allowances as well, particularly your capital gains tax allowance. For the current tax year everyone is allowed to make gains of £10,600 free of tax, giving a husband and wife a combined allowance in excess of £21,000. In our experience, people don't use their capital gains tax as much as they should in tax planning. This might well be an area where it is worth speaking to your professional adviser, but making good use of your CGT allowances can sometimes make a significant difference to your overall tax bill.
- Check your tax code. If you're unsure what your tax code is, it normally consists of one letter and a few numbers, and for most people, multiplying the numbers by 10 will show you how much you can earn before you pay tax. However, it's fair to say that HMRC frequently make mistakes with tax codes, and if yours is incorrect you could end up paying too much tax.
- Make use of your pension. Pensions can be used to make tax efficient contributions and can help to reduce your tax bill. Have a word with your IFA or accountant, as this is an area where a small amount of advice can save you a significant amount of money.
- If your spouse doesn't work - or earns less than the annual personal allowance - you should consider moving assets into his or her name. This is a perfectly legal and perfectly sensible tax planning move: again, your professional adviser will be able to give you advice on how to do this.
- It's important to remember that your children have allowances as well, both personal and for CGT. They can be employed in a family business and also have the normal CGT allowances - so it can make sense to move assets in to your children's names, especially if the value of those assets is likely to increase.
- Remember that interest paid on bank and building society deposits will have tax deducted at 20%. If you do not pay tax then you can sign a form to have the interest paid without the deduction of tax. Alternatively, you can submit a repayment claim to HMRC.
- Be aware of crucial dates in the 'tax calendar.' The most obvious - and widely reported one - is the self-assessment deadline, but there are other crucial dates throughout the year which you need to be aware of, especially if you are running a business. If you'd like a 'tax calendar' then don't hesitate to get in touch with us.
- Plan for Inheritance Tax. With the threshold for inheritance tax going up many people have been taken out of the IHT net, but for those that are still liable for this tax, it's one area where a small amount of planning can go a long way. Even something as simple as making a will could save you thousands of pounds.
- Finally, work with your professional adviser. Whatever question you ask he or she will have heard it several times before. A good IFA or accountant can pay for his or her services many times over with professional and expert advice. We've all got to pay our taxes, but work with your adviser and he or she will make sure you pay as little as possible.