10 Simple Tax Savings Tips

January 1st, 2008 | mortgages-

These tips are primarily focused on the UK, but, I hope our American viewers will be able to find some useful tips amongst these as well.

1. Savings in a Cash ISA

ISA is a special savings account where you can earn interest without paying any tax on it. It allows upto £3,000 a year to be invested without incurring any tax. For a top rate 40% tax earner this can be a significant saving – especially when you consider the cumulative benefits. For a top rate tax earner the savings will be £72 per year, if the full amount is invested

2. Pensions

The Government allow savings into pensions to be given tax relief. This means that if you save £6,000 a year, the government will top it upto £10,000 (the 40% tax on £10,000) is automatically added to the private pension. Furthermore the pension fund can grow, free of taxes such as capital gains. The only drawback is that the funds are locked up until you retire. But, if you are investing for the long term a stakeholder pension is a huge benefit.

3. Child Trust Funds

These are saving schemes for children that do not attract income tax or capital gains tax.

4. Avoid Paying Top rate tax on Investment and Income tax

If you pay the top rate tax and your wife or husband is in the lower tax rate make sure you take advantage of this to reduce your tax bill. For example, if your wife pays tax at 23% put your savings account in her name. Therefore, you will pay less tax on your interest than at the higher rate of 40%

5. Charity and Tax Savings

When giving to charity make sure you take advantage of any tax savings and rebates on offer. If you give through a scheme like gift aid, the charity can claim an extra £28 for every £100

6. Claim Tax Credits

Every year it is estimated upto £2billion goes unclaimed in tax credits such as income support and pension top ups and family credits

7. Don’t Pay Tax if you’re not a tax payer

If you don’t pay income tax make sure you don’t pay tax on your savings. Check to see whether interest is gross or net. If it is net it means the bank has taken off tax, you should get this tax back and gain interest tax free.

8. Cycle to Work

The government is now offering a scheme ‘Cycle to Work’ where employees can buy a bike off employers without paying tax. See tax savings for cyclists for more information about how to save money through cycling. see tax savings for cyclists

9. Keep complete Records

It is important that you keep upto date records of expenses and income. Then when you have to fill in your self assessment returns in September you can avoid getting stung for late penalties. Also, make sure that you are including all relevant expenses for your business such as travel, office costs e.t.c.

10. Do You have the right set up?

If you are self employed or even employed, it might be worth investigating whether it is worth setting up as in independent limited company. Although the chancellor has tried to crack down on individuals using companies as a tax dodge, there are still several benefits for having your own Ltd company.

Related