Tax Saving Secrets From Financial Advisers
Tax. It’s one of those words that often strikes fear into the heart. Almost as much as seeing the brown envelope from HMRC drop through the door. It’s even worse when you consider that UK taxpayers overpay around £4.6 billion each year through tax waste, just because they aren’t taking advantages of some basic efficiencies or tax breaks they are entitled to. At Chilvester, our job is to make sure you are making the best financial decisions you can, so we wanted to share a few tips with you around how to save tax, without breaking any laws!
Invest In A Pension
Pensions are a fantastic way to save for your future without paying a large amount of tax on that saving. At the moment, the rates on pensions tax relief are pretty generous (20% at time of writing for basic contributions), which means you could save money in the long run by investing money into your pension scheme. Thanks to auto-enrolment, there has been a significant tax waste drop around pensions, so getting yourself set up with a good pension (through your employer or privately) is a simple way to save tax. The only downside is that you have to be comfortable not accessing that money again until retirement!
Take Advantage Of Dividend Allowances
All UK taxpayers currently have a £2,000 dividend allowance. This means that any dividend payments you receive, either from a company shareholding or investments (outside of an ISA or pension) will not incur any tax liability up to this level. Any over that £2,000 limit will be taxed at a rate dependant on your marginal rate of income. So now might be the time to check on your circumstances and see what you could do to take advantage of this.
Set Up Children’s Savings Plans
If you’re thinking into the future, then you might be worried about the inheritance tax bill you will be leaving behind. Luckily, you can do something to reduce this now, rather than later. Setting up regular savings plans for your children or grandchildren is a great way to reduce your inheritance tax liability, providing doing so doesn’t materially reduce your standard of living. Those savings contributions would usually benefit from the ‘Normal Expenditure out of Regular Income’ exemption – meaning there would be no inheritance tax to pay on them. This is a great way to ensure you are providing for your family without being hamstrung by tax.
Take Advantage Of Tax-Efficient Savings Vehicles
There are hundreds of different ways you could choose to save these days, but if you’re looking to minimise your tax bill, it pays to shop around. By choosing more tax-efficient savings methods you can significantly cut or even eliminate the tax you have to pay on it. Just one example of this is an ISA. You can put up to £20,000 into an ISA every year, tax-free. You can either do this in a drip-fed way over the year, or in one lot just before April, when the tax year re-sets. You can repeat this every year, which makes ISAs one of the most compelling saving vehicles on the market.
Use Your Personal Savings Allowance
Your personal savings allowance means that every basic-rate taxpayer is able to earn £1,000 a year in savings before seeing a penny of tax charged on it. For higher rate taxpayers this goes down to £500, so you may need to make sure you know where you stand. Making sure you take advantage of this basic break can save you a nice chunk of money that can be spent on something else!
At Chilvester Financial, we want to make sure you are in the best financial position possible to enjoy your life and achieve your goals. Our experts are always on hand to help you understand your position and provide independent advice, plans and products that will help you get to where you want to be. If you would like to find out more, just get in touch with us today.