Taxes play a crucial role in supporting infrastructure, schools, and health services. While it’s important to pay our fair share, the government has also implemented tax-saving incentives to encourage individuals to save and invest for the future. In this article, we will explore some simple and effective ways to shield your money from taxes. However, please note that the information provided is not personal advice.
1. Maximise your ISA allowance
The ISA allowance is one of the most generous tax breaks offered by the UK government. If you’re a UK resident over 18 years old, you can contribute up to £20,000 into a Stocks and Shares ISA each tax year. By doing so, your investments are sheltered from UK income and capital gains tax. This means that any increase in the value of your investments will not be subject to capital gains tax when you decide to sell them. Additionally, any income generated from your ISA investments is exempt from UK income tax.
2. Consider paying into a pension:
Contributing to a pension is a tax-efficient way to save for retirement. As a UK resident under 75 years old, you can generally contribute as much as you earn to pensions each tax year and receive tax relief. While the current annual allowance is up to £60,000 for most individuals, this amount can vary based on your income or if you’ve already withdrawn money from a pension. By paying into a pension, you can benefit from up to 45% tax relief on your contributions.
For instance, if you pay £800 into a Self-Invested Personal Pension (SIPP), you’ll receive £200 (20%) added as basic-rate tax relief, resulting in a total contribution of £1,000. Higher-rate taxpayers can claim an additional £200 (20%) in tax relief through their tax return, while 45% rate taxpayers can claim up to £250 (25%) on top.
3. Distribute your assets
If you’re married or in a civil partnership, understanding the special rules around gifting assets can be beneficial. Generally, you won’t be subject to capital gains tax when giving or selling assets to your spouse or civil partner, unless specific circumstances apply (such as separation or providing goods for their business to sell). This allows you to divide your assets strategically and take full advantage of your CGT allowances before they are reduced in the new tax year.
For example, between a married couple, gains of up to £12,000 can be realized without incurring capital gains tax. However, it’s important to note that if your spouse or civil partner later disposes of the asset, they may be liable for tax on any gain based on the difference in value from when you first owned the asset.
4. Pay attention to capital gains tax
Capital gains tax (CGT) allows individuals to realize a certain level of gains without incurring tax liability. For the tax year 2023/2024, the CGT allowance is £6,000. However, starting from April 2024, the allowance will decrease to £3,000. It’s essential to be mindful of the value of ISAs and pensions. If you realize a gain on investments held within an ISA or pension, it won’t affect your CGT allowance. Any gain above the allowance that falls within the basic-rate tax band is subject to a 10% tax, while gains falling into higher- or additional-rate bands are typically taxed at 20%.
5. Seek advice from a financial adviser
While you may handle your own tax planning for the most part, there are complex areas such as inheritance tax where seeking professional help can be valuable. By reducing your tax burden, you’ll have more funds available to pursue
For complex tax matters and expert guidance tailored to your specific needs, it’s advisable to seek assistance from professionals. Contact 360 Accounting for comprehensive tax-saving advice and assistance with filing your returns. Our team of experienced accountants can provide personalized solutions to maximize your tax savings and ensure compliance with all relevant regulations.
Don’t navigate the intricacies of tax planning alone – let our experts simplify the process for you. Contact 360 Accounting today and take control of your tax strategy to minimize your liabilities and optimize your financial well-being.