Blog: 10 tax planning tips to boost your finances
With the deadline for online self-assessment tax returns coming up and with many feeling the seasonal strain on their finances after Christmas, Anita Monteith, ICAEW Tax Faculty Technical Manager, offers up 10 tax planning tips that could reduce your tax burden and leave you feeling better off in the New Year.
With the deadline for self-assessment at the end of January, many people will be adding up their bills. People may not realise that they could be saving money by taking advantage of tax reliefs and following some simple rules that will cut down their tax liability. You can save money on your savings, your investments and even your property, so make sure you’re aware of all your options.
1) From April 2015, a person whose income is less than the personal allowance can transfer up to £1,060 of that unused allowance to their spouse if that person pays tax at the basic rate. This could be a great gift worth up to £212 for some couples.
2) If you have a partner or spouse who pays no tax or who pays tax at a lower rate than you, consider holding savings in their name so as a couple you pay less overall.
3) If you’re planning on giving a child money for their birthday, the tax rules are different for parents than grandparents. It’s worth keeping in mind that interest in excess of £100 on money given to a child by a parent, will be treated as that parent’s income, but if the money comes from grandparents, it is taxed as the child’s own income and will probably fall within the child’s personal allowance.
4) If you’re willing to invest in high-risk companies, such as start-ups and small businesses, investments qualifying for the Seed Enterprise Investment Scheme, Enterprise Investment Scheme or Venture Capital Trusts, offer tax relief, whilst also giving a much needed boost to those businesses.
5) If you’re a landlord, don’t forget that interest paid on rental property loans can be an allowable deduction from rental income. Plus, if your rental property is let fully furnished, you can claim an annual 10% wear and tear allowance (usually 10% of rent receipts) regardless of how much or little you spent renewing the furniture this year.
6) If you have a lodger in your home, you can receive up to £4,250 per year tax free, but this does mean you can’t claim any rental expenses as an additional tax deduction.
7) With the pension freedoms due to arrive in 2015, make sure you have a plan for how you’ll use your pension pot when the time comes. The increased flexibility will benefit many, but if you withdraw more than the tax-free 25% you may be hit with additional tax. Plan ahead, calculate if it’s worth the hit and also think about what you will do with the funds once you have them.
8) Most people know about the new ISA, which allows all adults to save £15,000 tax free, but there are other products that are also advantageous. If you’re squirrelling away money for your retirement, you could consider a Self-Invested Personal Pension (SIPP). SIPPs offer tax rebates on contributions, but you do have to sacrifice some access to the funds.
9) If you can, take advantage of your annual allowance for pension contributions. You’re allowed to put aside £40,000 tax-free in 2014/15 – much more than you can with an ISA. The only catch is you won’t have any access to the money until you’re 55.
10) It’s important to plan ahead to protect your family from a future tax bill. If you think your estate will exceed the £325,000 inheritance tax threshold, it’s important to seek help from an ICAEW Chartered Accountant, who may be able to help you to pass on more of your wealth to your family.