With the proper planning and advice, you might be able to minimise the amount of tax you pay, whether you’re an employee, self-employed, a landlord, or enjoying retirement.
For a small amount of effort, it’s possible to make a significant difference – legally - to the tax you pay. Personal tax planning strategies can include looking at earnings, savings, investments, and property.
Let’s look at some of the ways you could be saving…
1. Check your tax code!
If you’re an employee or receiving a private pension, you’ll have a tax code. Issued by HMRC, your tax code determines the amount of tax that you pay, and even a small error can amount to potentially a large amount of overpaid tax.
There are many different codes, depending on factors such as your earnings and your location. You can find your tax code on your payslip and if you suspect you’re paying too much tax, you can claim it by contacting HMRC.
2. Find out if you’re eligible for tax credits
A tax credit is an amount of money that can be offset against a tax liability. Whether you’re eligible and how much you receive depends on your circumstances and household income.
HMRC deals with claims, so if you think you may be eligible for a tax credit, use the Gov.uk Tax Credits Calculator to get an estimated figure of how much you could receive.
3. Pay more into your pension pot
Pension contributions can be an effective way to pay less tax,as by paying more into your pension you will be reducing your taxable income.If you are an employee, your employer will take care of deducting pension payments from your pay before working out your tax.
If you’re self-employed and making payments to a personal pension scheme, you may be able to claim tax relief equivalent to the rate of income tax you pay.
4. Take advantage of tax-free saving
If you’re a basic rate taxpayer, you can earn £1,000 of interest on savings tax free, only paying tax on the income that goes over that amount. If you’re a higher-rate taxpayer, your tax-free allowance is £500.
Don’t forget that everyone is entitled to take advantage of their annual tax-free ISA (Individual Savings Accounts) allowance. In the 2021– 2022 tax year, the maximum you can save in an ISA is £20,000, which can be used for either a cash, stocks and shares or a lifetime ISA.
5. Make more of residential property
If you’re considering renting a room in your house, the Rent-a-room scheme allows you to receive up to £7,500 in rent from a lodger every year, tax free.
There are also benefits if you take out a mortgage to buy a rental property, allowing you to claim a 20% tax credit on mortgage interest. The tax implications of letting residential properties are updated regularly, so talk to your accountant before making any decisions and to ensure you are set up correctly.
6. Transferral of assets
If your husband or wife pays less tax than you, they could be losing out on tax allowances each year.
Transferring investments to them is perfectly legitimate and will then form part of their tax assessment, reducing your bill but ensuring your spouse’s annual tax-free allowance is used and any tax due is paid at a lower rate.
7. Look at your inheritance tax planning(IHT)
Understanding the value of your estate and your overall net worth will help to give you a picture of whether you’re likely to need help minimising the amount of future IHT. If your estate isn’t above the nil rate band of £325,000, there will be no tax to pay. Anything over £325,000 could be subject to 40% tax.
Potentially Exempt Transfers (PETS) from your estate can be made tax free if you live for a further seven years after making them and can be gifts of unlimited amounts. You can also take advantage of the annual IHT exemption for cash gifts of up to £3,000.
The rules around IHT can be complicated, but we can help you begin to plan – talk to us about preparing an IHT healthcheck.
Of course, the best way to ensure you are as tax efficient as possible is to seek advice from your accountant, which will be tailored to your personal financial situation. For a no obligation chat, give one of the friendly Blue Rocket Client Advisors a call on 01322 555 442 or drop us an email.
- To discuss property or mortgage advice, contact Rebecca Burden, our resident Mortgage and Protection Adviser on 07738 492284 or email firstname.lastname@example.org
- For more tips on becoming a tax savvy business owner, download the free Blue Rocket guide to reducing your tax bill.