Everyone wants to pay less tax. Here are some simple ideas to make sure you keep your tax bill down other than by simply investing in an ISA.
1. Use your spouse’s tax allowance
Nearly everybody in the UK is entitled to an Income Tax Personal Allowance, which is the amount of income you can receive tax free each year. The amount of your personal allowance depends on your age and your income, but the basic personal allowance in the 2015-16 tax year is £10,600. If you are being taxed on income from investments, and your spouse has no income, then transfer the investment into their name – that way you use their tax allowance and save tax. If you have a small business and your spouse has no income, consider getting your spouse to help out in the business and pay them for their efforts – again it uses their tax allowance and saves tax.
It is also now possible to transfer part of your allowance to your spouse if their income is less than £10,600 in the 2015-16 tax year, which could save you up to £212 tax. You can register your interest now with HMRC.
2. Make sure you apply for relevant tax credits
Check to see if you are eligible for Child Tax Credit and Working Tax Credit – and if you are then make sure you claim them. In order to claim tax credits you will have to fill in a claim form. HM Revenue & Customs provides some detailed advice on how to claim.
3. Check that your tax code is correct
HM Revenue & Customs give you a tax code based on information they have on you, and your employer calculates how much tax to deduct from your salary based on that tax code. If HMRC don’t have up to date information for you, or have made an error in issuing your tax code, then you could be paying the wrong amount of tax. If your tax code is wrong then you should contact HMRC as soon as possible so they can correct it.
4. Use your capital gains allowance
If you sell an asset like shares or property then you have to pay capital gains tax on the profit. You get a tax free allowance each year (£11,100 for an individual in the 2015-16 tax year), which you lose if you don’t use it – i.e. you can’t carry it forward. If you know you own assets which have gone up in value since you bought them then it may be worth selling some assets, crystalising the gain, and using your tax free capital gains allowance.
5. Consider investing in a pension
Pensions are incredibly tax efficient. If you make pension contributions then you get tax relief on those contributions – so if you are a basic rate (20%) tax payer then for every £80 you contribute into your personal pension, your pension pot goes up by £100. If you are a higher rate tax payer then you should claim the extra tax back in your tax return, or by contacting HMRC. If you don’t pay tax you can still get that basic rate tax relief on the first £2,880 a year you pay into your pension – which is the only way I can think of that you can get tax back that you haven’t even paid!
Make sure that you spend some time looking at your tax position – if you are able to save yourself some tax by following some of these simple tips then it will be worth the time!