Updated 03 September 2020
As part of our TaxAction 2016 campaign in partnership with Prudential, we bring you the ten top ideas for reducing your tax bill, as supplied by financial advisers listed at Unbiased.
You don’t need a hedge fund to make your money grow fast – you just need to trim back the amount you waste every day in tax. The government itself offers plenty of incentives to help people save, invest and do business tax efficiently, but if we don’t take advantage of these allowances and reliefs then we have only ourselves to blame.
Our TaxAction 2016 research found that UK taxpayers are still set to waste a collective £4.6 billion this year, by failing to take simple and achievable steps towards tax efficiency. Quite simply, most of us are still paying more than we have to. So we asked ten of the expert advisers listed at Unbiased to come up with a simple tip for the current tax year – and here they are.
Invest in pensions now!
‘The latest Budget retained the current system of tax relief, but many still believe that higher-rate and additional-rate tax relief may be reduced or even abolished over the next few years to bring them into line with the newly introduced Lifetime ISAs. So there is a compelling argument to invest as much as possible into your pension now while we still have those generous rates.’ – Jonothan McColgan, Combined Financial Strategies Ltd
Use your personal savings allowances
‘Use your pension and ISA allowances early – not on 5 April 2017! Also, if you have unrealised capital gains in your portfolio and have not used your personal allowance, sell holdings up to the personal allowance before the end of each tax year.’ – Simon Webster, Facts & Figures Financial Planners
Consider opting out of pensions
‘If you already have substantial pension savings, consider whether you want to opt out of pensions for the future and claim Fixed Protection 2016. This is because the pension lifetime allowance was reduced from 6 April 2016. I’ve prepared calculations for one individual with only £500,000 of funds and have recommended that they opt out. Naturally personal situations will vary, but this highlights the need for tailored advice.’ – Alistair Cunningham, Wingate Financial Planning
Rebalance your portfolio to reduce capital gains tax
‘Use the extra pension contribution allowance (available only as a one-off) and consider a portfolio rebalance while fund values are low, to reduce exposure to capital gains tax.’ – Tony Larkins, Beacon Wealth Management Ltd
Use cash savings accounts
‘A revolution in cash savings will see ordinary cash accounts paying interest without tax deducted. Basic rate taxpayers will receive £1,000 of tax-free interest from cash deposits and higher rate taxpayers will be entitled to £500 tax-free. Only additional rate taxpayers won’t have any personal savings allowance.’ – Danny Cox, Hargreaves Lansdown
Take advantage of dividend allowances
‘All taxpayers now have a £5,000 dividend allowance. This means any dividend payments you receive, either from a company shareholding or investments outside of an ISA or pension, will not incur a tax liability up to this level. Anything over £5,000 will be taxed at a rate dependent upon your marginal rate of income tax. A review of your circumstances could be vital.’ – Armstrong Watson Financial Planning
Invest in ISAs
‘Despite the personal savings allowance on ordinary savings accounts, ISAs still offer many additional benefits. £15,240 may be paid into an ISA in this tax year. It is no longer possible to “bed & breakfast” shares to maximise the use of the CGT exemptions, but a “Bed & ISA” will crystallise some of the gain. Married couples may even “bed & spouse” to use their partner’s CGT exemption!’ – Rowena Griffiths, Female Financial Management
Set up children’s savings plans
‘If you are worried about IHT, consider setting up regular savings plans for your children or grandchildren. Provided the savings do not materially reduce your standard of living, they would benefit from the “Normal Expenditure out of Regular Income” exemption, meaning that these savings would be free of IHT.’ – Scott Gallacher, Rowley Turton Private Wealth Management
Transfer savings to your spouse
‘If you work and your spouse doesn’t, or pays tax at a lower tax rate, then you may be missing out on tax savings if you have investment income. You could make tax savings by transferring savings or shares into your spouse’s name or changing the ownership of investment properties, so that the ownership is weighted in favour of your spouse, which means that the income would be too.’ – Gretchen Betts, Broadway Financial Planning
Make charitable donations
‘Take time to understand your tax position so as to make the most out of tax breaks on pensions and charitable donations. In particular, donations can reduce your taxable income below income thresholds. Some key thresholds to be aware of are:
£10,600 – the tax-free personal allowance that most people have
£42,385 – the point at which 40% tax starts for most people.
£50,000 to £60,000 – the bracket in which child benefit is lost.
£100,000 to £121,200 – where a quirk in the tax system means income tax shoots up to 60 per cent
£150,000 and over – where the tax rate is 45 per cent.’
Remember, a tip is just a tip. For a full assessment of your tax situation and tailored advice on how to reduce your tax bill on an ongoing basis, talk to a financial adviser. You can find your nearest tax specialist using our smart postcode search.
TaxAction 2016 is sponsored by Prudential.