This life we live has very few certainties; however, one of those certainties will always be paying taxes. If you’re feeling a little low on funds after this last round of taxes, fret not. There are plenty of ways you can reduce your tax for next year. Here are four simple tips to get you started.
1. Use an ISA Allowance
This allowance is a “use it or lose it” fund. ISAs do not roll over to the next year so don’t miss out on your chance to use it while you can. A Cash ISA does more for you than a regular savings account. You won’t have to pay taxes on the interest rates. ISAs can be taken out through the use of banks, fund managers, and building societies, or they can be taken out of a self-select ISA with independent financial advisors, fund managers, and stock brokers. They come in the form of bonds, shares, or funds.
2. Pension Investment
Tax relief is provided by the government to the highest rate of all your pension contributions. To put it simply, a basic-rate taxpayer will pay £78 on a £100 pension investment whereas a higher-rate taxpayer will pay only £60. Either way, the government will make up for the additional cost. While you’re able to have as many different pension accounts as you so desire, the government caps you at a total of £235,000. Access to this money isn’t permitted until you reach the age of 55. It’s been said that investing in a pension is the best way to save on income tax and earn money tax-free.
3. Capital Gains Tax (CGT)
This tip can be a bit tricky so it’s best to work with your tax specialist to make sure you’re making the right move for your finances. The short of it is this: when you sell, or dispose of, an asset, the money you gain (not the full amount of money received), is taxed. Some assets fall into this category, others do not. To know how you can save, set up a time to chat with your tax expert.
4. Transfer Assets to Your Spouse
If you plan to sell some of your assets, transfer them to your spouse first. This allows you to use up both of your CGT allowances, up to £9,200 each in a given year. In addition, inflation is taken in to account for assets that were acquired between the years 1982 and 1998. Another strategy is to move the assets to the spouse with the lower tax band instead of having a joint account.
Check back next month for more tips on how you can reduce your taxes!