Are you one of the 33m* people in the UK who could reduce your personal tax bill?
Here are five ways to help you with efficient tax planning.
Move savings into tax efficient ISAs
The Individual Savings Account (ISA) is a tax efficient savings product that comes in two variations, the cash ISA and the stocks and shares ISA. The cash ISA provides an opportunity for totally tax-free savings. In the stocks and shares ISA, a small amount of tax is taken by government but the product is still tax-advantaged. The total you may save into ISAs is currently £7,200 per year (unless you are over 50, in which case it is £10,200). From April 2010, the ISA allowances increase, and everyone may save up to £10,200 per year into their ISAs.
Use your personal tax allowancesÂ
In the case of a couple where one person is a non-taxpayer, you can save on tax by placing savings accounts in the name of the non-taxpayer, who can then receive the interest, up to their personal tax allowance of £6,475 per year, tax-free.
Plan ahead to avoid Inheritance Tax
You can work now to avoid Inheritance Tax (IHT) later, by passing money to your children in such a way that no IHT liability arises. A person may make a large loan to their child, for instance £100,000 to buy a house, and then write that loan off at up to £3,000 per year (£6,000 for a couple), thus avoiding an IHT liability.
Write your insurance policies in trust
By writing an insurance policy in trust when it is originally set up, you effectively remove that insurance cover from your estate, and thus reduce the value of your estate for IHT purposes. Writing an insurance policy in trust is a simple matter, but is worth doing, when you consider that an insurance policy for £200,000 could be subject to £80,000 in Inheritance Tax!
Use Salary Sacrifice
A salary sacrifice is an arrangement you make with your employer which can help you cut your income tax bill. With salary sacrifice, you give up a portion of your salary, taking instead a non-cash benefit, such as an employer contribution to your pension fund. Although your cash in hand at the end of the month is less, your pension is boosted and attracts tax relief on the contributions which means that your total remuneration actually increases.
*Research conducted by Fidelity International, September 2009
