How to cut your tax bill

Post on: 29 Апрель, 2015 No Comment

How to cut your tax bill

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/media/article-images/Money/cash-savings-loans/Piggybank-Family-Isolated-5964236.jpg?h=225&w=300&as=1 /%When economic times are hard it makes even more sense to pay as little tax as possible.

From using up your ISA allowance to sharing assets between you and your spouse, there are lots of ways to ensure you’re not giving the Treasury a penny more than they are entitled to.

But taxpayers have more to worry about this year as new changes to HM Revenue & Customs’ penalty system mean that more of us are likely to face fines for filing returns late or getting our sums wrong.

Penalty changes

As of the current tax year, which started in April 2011, HMRC has greater scope to issue fines for late filing of self-assessment forms and late or under-payment of tax.

Before this date, late-filing fines of £100 could be waived provided there was no tax outstanding or the tax was paid on time. But this is no longer the case. If you’re late, you’ll be fined, regardless of whether you owe tax or not.

The annual deadline for paper returns, 31 October, is approaching so if you want to file a paper return you must ensure it reaches the tax office by midnight on that date.

Anyone who still hasn’t filed their paper return by the end of January can be fined a further £10 per day, up to a maximum of £900. And there are extra penalties relating to any unpaid tax.

However, if you’re filing online you have until 31 January to do so and using the Revenue’s website means you’ll be given an instant tax calculation as well as an official receipt.

How to cut tax

Avoiding late-filing penalties is one thing but for most of us there is much more to be gained by taking advantage of some straightforward tax-saving measures.

Here are some of the easiest to put into action:

• Cut your savings tax

On any standard savings account, the amount of interest you get will have 20 per cent basic-rate income tax automatically lopped off it.

Banks and building societies do this because most account holders are basic-rate taxpayers.

But if you’re not a taxpayer – for example, if you’re a student, you’ve retired, or are for any other reason earning less than the annual tax threshold – you need to tell your bank and make them stop these deductions. You can do this by filling out HMRC form R85 .

• Use your tax-free allowances

If you are a taxpayer, then your first port of call for savings should be an ISA. You are allowed to save up to £10, 680 every year tax-free.

You can invest a maximum of £5,340 of your allowance in a cash ISA tax-free. Or if you invest the remaining £5,340 or even the full £10,680 in a stocks and shares ISA you won’t have to pay capital gains tax on it.

When interest rates are low, as they are today, the benefits of ISAs appear to diminish. But if interest rates rise to 6 or 7 per cent in a few years’ time, the money you put in your ISA now will still be tax-free and the benefits would be much greater.

• Set up life insurance in the right way

How to cut your tax bill

Taxes on inheritance are one of the government’s biggest sources of income but they can be avoided.

For example, if you set your life insurance policy up in trust, the proceeds would go directly to your family and they would not be counted in the assets that are subject to 40 per cent inheritance tax.

Setting a policy up in trust is simple, and not expensive. Talk to your insurer about whether it’s right for you.

• Pay the right tax on income

If your tax office gives you the wrong tax code, you could end up paying too much income tax – or you could be paying too little, and face a big bill further down the line.

Your tax code is calculated based on how much income you’re expected to earn plus any deductions that HMRC thinks may apply – for example, your pension contributions or savings interest if you’re a higher-rate taxpayer.

Check your code — it should have been posted to you and it will be shown on your payslip. If you don’t understand it or it looks wrong, contact your tax office.

For 2011-12 you should have a tax-free allowance of £7,475 if you’re below pension age. If your tax code gives you more or less than this, make sure you understand why.

• Use your partner

If a married couple or civil partners are in different tax brackets they can share assets to cut their tax bills.

For example, if the wife is a higher-rate (40 per cent) taxpayer and her husband is a basic rate taxpayer (20 per cent), they will benefit from moving the wife’s savings into her partner’s name where the interest they earn will only attract income tax of 20 per cent.

There is nothing underhand about measures such as this, it’s perfectly legitimate.


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