18 Ways to cut your tax bill

Post on: 27 Апрель, 2015 No Comment

Danny Cox | Jun 2013

Danny Cox, Head of Financial Planning, looks at the best ways to save tax and enjoy tax free income.

Please note, tax rules can change and the benefits will depend on individual circumstances. Stock market investments will fall as well as rise in value. Neither capital nor income is guaranteed, so you could get back less than you invest.

1. Use Cash ISAs

Interest from Cash ISAs is tax free. Up to £5,760 can be invested in Cash ISA per person this tax year (the tax year runs from 6 April 2013 – 5 April 2014).

2. Buy fixed interest funds in your Stocks & Shares ISA

The interest from fixed interest funds is tax free within a Stocks & Shares ISA and there’s no capital gains tax to pay. There is no further income tax to pay on income from stock market based funds in an ISA. Up to £11,520 can be invested in ISA per person this tax year (of which £5,760 can be Cash ISA).

3. Save for your child

Cash and fixed interest funds within Child Trust Fund (CTF) and the new Junior ISA, are tax free. Income from stock market based funds in CTF and Junior ISA only suffers 10% tax with no further tax to pay and there is no capital gains tax. The interest from CTFs and the new Junior ISA is reinvested until the child reaches age 18. Up to £3,720 can be invested in CTFs in this tax year or Junior ISA.

4. Save with NS&I

Certain NS&I investments pay tax free returns, the most popular being the Index-Linked certificates and Premium Bonds. Check their availability at (www.nsandi.com).

5. Don’t forget your capital gains tax allowance

Investors can realise capital gains of up to £10,900 per tax year free of capital gains tax. Some investors use their capital gains tax allowance annually to supplement their income by taking the profit from their investments up to the tax free limit.

6. or your spouse’s capital gains tax allowance

If you’re married or in a civil partnership you can transfer investments to your spouse without a tax charge and then sell to use their capitals gains tax allowance. This means a couple effectively has a double allowance of £21,800 this tax year.

7. Buy to let investors can offset expenses

Buy to let investors can offset certain costs against the rental income received, such as mortgage interest and letting agents’ fees. Check what you can offset to reduce your tax liability.

8. Invest through offshore bonds

An offshore investment bond allows investors to withdraw 5% of the original capital value each year for 20 years without immediate charge to income tax, e.g. £5,000 per annum from a £100,000 investment. Withdrawals in excess of this are subject to income tax. Investors can use this facility to supplement their other taxable income.

9. Invest through Venture Capital Trusts

Income from Venture Capital Trusts is tax free. Income tax relief is also available on new subscriptions, up to a maximum of 30% of the amount invested i.e. £3,000 on a £10,000 investment. VCTs are also capital gains tax free. Investors have to hold the VCT for five years to retain the tax relief. Please note VCTs are higher risk and not for the faint hearted. They are aimed at sophisticated investors who can afford to take a long term view and accept the inevitable falls in value with a view to making a longer term gain. It is important to invest for investment reasons alone, and treat the tax benefits as a bonus.

10. Buy a Purchased Life Annuity

A Purchased Life Annuity is an investment designed to provide high income normally over a fixed term. Part of the income paid is deemed to be a return of your original investment and therefore treated as tax free. The interest element of the income is taxable, but tax free if it falls within personal or age related allowances.

11. Use a long term care annuity

Long term nursing care is expensive, around £36,000 a year on average according to Laing & Buisson. One of the most tax efficient ways to help pay for care is to use a long term care annuity. This is designed to pay high rates of income to help meet care costs and the income is tax free if paid direct to the care provider.