Most people want to keep their tax bill as low as possible. Now, the cost of living is creating an extra incentive to do so. With that in mind, here are five tips on ensuring you keep as much of your money as possible.
Examine your employment conditions
If you’re employed, check to see if any of your benefits are taxable. If they are, make sure they’re worth the tax or withdraw from them. Also, consider whether you could afford to save more towards your pension. If you could, then increasing your contributions will reduce your taxable income (within limits). It will also help to give you a more comfortable retirement.
If you’re self-employed claim all your tax-deductibles
If you’re self-employed, you don’t get benefits the way employees do. On the other hand, you are likely to have a lot more scope for claiming tax-deductible expenses. Make sure you claim everything you can. If you file your taxes yourself, it may be worthwhile to switch to using an accountant.
An accountant can also advise on whether it would be better for you to work as a sole trader or as a limited company. This can have major implications for your taxes so it’s definitely worth getting right.
Regardless of which structure you use, you can have a pension. Again, it’s worth making the highest level of contributions you can afford. This reduces the amount of Income Tax and NI you pay in the present. It also helps you to enjoy a better retirement in the future.
Remember your ISA allowance
Depending on your age, you may be able to have more than one ISA. Younger adults can have both a Lifetime ISA and a regular ISA. Whether or not this is a good idea depends very much on your situation.
LISAs can be a good way to save for a deposit on your first home. Just be aware that withdrawing funds for any other purpose attracts a hefty penalty. Using a LISA to save for retirement is much more of a grey area. If you’re interested in it, then it’s advisable to get professional advice before you commit.
Children aged 16-17 can have both a Junior ISA and an adult Cash ISA (not a Stocks and Shares or combined ISA). Opening a Junior ISA for your child can be a cost-effective way to save for their future. There are, however, two important caveats to remember.
Firstly, as with LISAs, once the money is in the ISA, it’s locked away until your child turns 18. You cannot access it at all, not even if you pay a penalty. Effectively, as soon as the money goes into the account, it becomes your child’s not yours. Secondly, this means that as soon as they turn 18, they can spend it however they want.
Consider reinvesting your dividends
If you don’t need dividend income just now, then you might want to look into the option of having your dividends reinvested instead. Reinvesting dividends can actually bring you better long-term returns than just taking the cash. This is particularly true now since interest rates are still fairly low. Reinvesting dividends also means you avoid paying Dividend Tax.
If you do need some dividend income, then see if you can keep it below your tax-free allowance. This currently stands at £2000 per year.
Make use of marriage allowances
Couples who are married (or in a civil partnership) may be able to lower their joint tax bill by making use of marriage allowances. In particular, someone whose earnings are below the personal allowance can transfer up to 10% of their personal allowance to a higher-earning partner.
Similarly, a higher-earning partner can pay into a pension fund for a lower-earning partner. The lower-earning partner is granted the equivalent of the tax relief.
For mortgage and protection advice, please get in touch.
For savings, investments, pension, and tax planning we act as introducers only
The FCA does not regulate some forms of tax planning
Comments