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Tax tips to pay less tax
Tax Tips to Pay Less Tax

Most people would like to pay less tax. Here are some useful tax tips to help you lessen your tax burden.

1. Check your personal allowance to pay less tax.

Your personal allowance is the amount of income you are legally allowed to receive from earnings, pensions, and savings before having to pay tax. It is surprising, but many people are uncertain about their personal allowance. One of the best tax tips is to find out what your personal allowance is to ensure you are not over-paying in tax and to help you pay less tax!

There are different allowances for individuals depending on their age and level of income. At the beginning of every tax year starting April, make it a point to check your personal allowance as this can change from year to year.

If you discover that you have been mistakenly taxed although you have earned less than your basic personal allowance in a tax year, you can contact your HM Revenue & Customs office to claim a rebate, so you can pay less tax.

2. Know your tax code to pay less tax.

Another of the essential tax tips is to check that you have been given the correct tax code. Every year, thousands of people find that they would have been able to pay less tax if they had been put in the right tax code category.

Tax codes comprise of a series of numbers and a letter to indicate in which category you belong. If you are a taxpayer under the age of 65 and receiving the basic personal allowance, your tax code will read 522L.

To determine your personal tax code, deduct the value of your total benefits from your basic personal allowance. Benefits include items such as:

  • company car

  • private medical insurance.

  • state pension, if relevant

  • married couple's allowance, if relevant

  • certain types of savings interest and share dividends for higher-rate taxpayers

3. Consider your savings interest to pay less tax.

An important way to ensure you pay less tax is to look at how your savings interest is being taxed. In the UK, there is an interest rate charge of 20% on all savings.

If, however, you are not a taxpayer or if you earn just slightly more than your basic personal allowance, you are only required to pay 10%. Unless you inform them of your specific circumstances, most banks and building societies will automatically deduct 20% at source. One of the useful tax tips to remember is to obtain and complete an R85 form, available from your bank, to ensure your savings interest is tax-free. You can reclaim the extra tax every April by asking the Inland Revenue for an R40 form.

4. Pay less tax by using your spouse's name.

Another of our practical tax tips to allow you to pay less tax is to take advantage of your spouse's unused tax allowances or lower tax rate band. By giving your savings to your spouse who will pay less tax, you will be able to enhance your income. This simple transfer could save you hundreds of pounds in tax payments.

5. Make use of tax-free savings to pay less tax.

Saving through an ISA is an excellent way to pay less tax. If you are 16 years and over, you are allowed to invest up to £3,000 per tax year in a cash ISA. With certain types of ISAs, you will not only enjoy a higher rate of interest, but the interest paid out is tax-free.

Other 'pay less tax tips' to consider so that you pay fewer taxes on savings are the following:

  • Stock market ISAs are free of capital gains tax.

  • Corporate bond income is free of income tax.

  • Higher-rate taxpayers do not pay extra tax on dividends.

  • National Savings and Investments' index-linked certificates are tax-free if you hold them for 3 or 5 years.

  • Certain insurance company bonds allow you to take 5% a year income for 20 years without paying immediate extra tax.

6. Know the benefits of offsetting your mortgage to pay less tax.

Another tax-saving idea is to use some or all of your savings to offset your mortgage. Although you will not earn interest on your savings, offsetting your mortgage can provide these benefits:

  • You will not pay tax on your savings.

  • You will pay less tax on your mortgage.

  • You will reduce the term of your mortgage.

7. Organise a pension to pay less tax.

You can pay less tax by saving into a pension fund. On retirement, it is possible to take a cash lump sum tax-free.

One of the best pension choices is the final salary scheme offered by some employers which is based on the length of your service and your salary.

Private pensions and other types of company pensions which track the stock market can also offer good tax breaks and help you to pass less tax.

8. Don't forget the last of our tax tips!

You can also pay less tax by making use of your Capital Gains Tax Allowance and making charitable donations through Gift Aid.

 Compare the best tax tips

 
 
 
 
 
 
 
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