In this article, we’re sharing ten simple tax tips. With a bit of forward planning, it’s possible to reduce your tax liabilities and avoid any nasty surprises.
In the UK, the government provides a generous 20% basic-rate top-up on your pension contributions. However, if you’re a higher rate or additional rate taxpayer, you may be eligible for further tax relief on your contributions. This relief may not always be awarded through the PAYE system, so it’s worth checking your payslip.
If you're uncertain or have questions about the tax relief on your pension contributions, it's a good idea to seek advice from a tax adviser or financial expert. They can help you understand your specific tax situation and ensure you're receiving the maximum benefit from your pension contributions.
Your tax code, issued by HMRC, plays a critical role in determining the amount of tax you pay at source on your salary and pensions. Outdated or inaccurate figures can lead to overpayments or underpayments of tax. It’s therefore essential to check your tax code notice from HMRC as the taxman isn’t always right. Make sure you review it for accuracy and speak to a tax adviser if you’re not sure.
Individual Savings Accounts (ISAs) are a useful tool for tax-efficient saving and investing. They offer tax-free growth and income on your savings. Parents can fund junior ISAs for their children, which can be a useful fund for future higher education costs.
If you’re married or in a civil partnership, you may be eligible for the marriage allowance which can reduce your tax bill. The marriage allowance is a tax benefit provided by the government to married couples or civil partners, where one partner earns less than the personal allowance threshold and the other is a basic-rate taxpayer.
Another strategy is to consider moving savings or other assets to a lower earning spouse or civil partner. This can maximise tax allowances and take advantage of lower tax rates based on each person's income.
Higher and additional rate taxpayers can claim tax relief on charitable donations made through the Gift Aid scheme. Keep a record of your donations and ensure you include them on your tax return.
The annual capital gains exemption cannot be carried forward, so use it or lose it. Assets can be transferred between spouses and civil partners on a no gain/no loss basis. This should be considered to ensure exemptions are fully utilised, particularly important now that the exemption is going down to £3,000 in 2024/25.
Estate planning is essential to mitigate the impact of Inheritance Tax (IHT), which stands at a substantial 40%. Gifting assets during your lifetime is a strategic approach to reduce the overall value of your estate, thereby lowering the IHT payable upon your death. Some gifts may be entirely IHT exempt, such as those to spouses, registered charities, and political parties, or will become exempt if you survive 7 years.
However, please take advice from a tax professional to ensure there are no capital gains tax consequences associated with certain gifts.
Your State Pension entitlement at retirement age is determined by the number of qualifying years on your National Insurance record. To ensure you receive the maximum State Pension, request a pension forecast and address any gaps in your contributions. You typically have up to 6 years to make voluntary contributions, which can enhance your future retirement income.
A State Pension forecast can be obtained online at www.gov.uk/check-state-pension.
Consider investing in Venture Capital Trusts (VCTs) and Enterprise Investment Scheme (EIS) investments to potentially benefit from Income Tax, Capital Gains Tax and Inheritance Tax reliefs. These investments are not without risk and you should seek specialist financial and tax advice if you are considering investing.
Maintaining accurate financial records throughout the year is essential for preparing your tax return efficiently. By keeping detailed records of income, expenses, and investments, you can ensure that you don't overlook any available deductions and reliefs when it's time to file your taxes.
By following these ten tax tips, you can minimise your tax liability, and make the most of available tax benefits.
At Lubbock Fine LLP, we understand that managing your finances and navigating the complexities of taxation can be challenging. Our team of experienced tax professionals and financial advisers is here to provide you with expert guidance and support in implementing these tax-saving strategies.