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10 Ways to Beat the Tax Man
They say the only certain things in life are death and taxes. So why do we allegedly waste £9.3 billion a year by paying too much tax?
Tax doesn’t have to be taxing - here are a few legitimate ways in which you can claw back some of this waste to make your investments work as tax efficiently as possible .. whilst keeping as much of your hard earned cash as is allowed, away from the tax man!
1. File your Self Assessment Tax Return on Time
£479 million waste could simply be wiped out by getting all paper forms to the Revenue by the 31st October deadline, or completing your return online by the 31st January deadline. If you are required to fill in a 2008/2009 tax return and have not done so yet, you better crack on! Self-assessment forms received after the deadline incur penalties of £100; further penalties and errors make up the balance of tax wasted in this way.
2. Claim your Losses
With £200 billion wiped off the FTSE over the last couple of years, investors who realised an overall loss over the 2008/2009 tax year should report this to HRMC with their Self Assessment. If you report your losses to HMRC this allows the loss to be carried forward indefinitely to offset against gains made in the future, thereby reducing prospective tax bills. See the article: Capital Losses for more information.
3. Use up your Yearly ISA Allowance
You can save up to a total of £7,200 per year into Individual Savings Accounts (ISAs), of which up to £3,600 can be invested in cash. Savings held on deposit in a Cash ISA earn interest tax-free, whilst investments made into Stocks & Shares ISAs grow free of Capital Gains Tax and Income Tax. You don’t have to declare any of the tax-free interest or gains to the tax man. Apparently - £263 million can be saved by moving savings from an ordinary deposit or savings account to an ISA to shelter your investments.
And the ISA Allowance is about to get even more generous. If you are over 50 you will be able to invest upto £10,200 from October 2009 - the rest of us will have to wait until April 2010 for the same privilige!
4. Transfer your Shares to an ISA or SIPP
Many UK stock brokers now offer Self Invested Personal Pension (SIPPs) accounts and ISAs in addition to the usual trading account, enabling you to trade your own share portfolio tax efficiently. Assets held within the SIPP and ISA tax wrappers are free of Capital Gains Tax on gains; and there is no Income Tax to pay on dividends or interest received from assets held.
5. Gift Assets to your Spouse
If you have a non-taxpaying husband or wife, why not consider gifting assets in to his or her name? Every adult is allowed to make up to £6,475 in income and £10,100 in Capital Gains before being subject to tax (tax year 2008-2009), so gifting assets is an excellent way to make the most of both of your CGT and Income Tax allowances - and save yourself some money. £144 million could be saved in Income Tax by redistributing savings in this way. Another £264 million could be saved by making use of spouses’ Capital Gains Tax allowance.
6. Don’t Forget your Pension Contributions
You currently receive tax relief at your highest rate of income tax on your Personal Pension contributions. 20% tax relief is given at source, which means that for every £80 you pay into your pension you end up with £100 actually invested. In addition, higher rate tax payers are entitled to a further 20% tax relief, this needs to be claimed back either via your annual self assessment tax return or by making a claim by letter or telephone.
The extra relief equates to an annual tax refund of £240 on a net pension contribution of just £80 per month – money that is better sitting in your pocket than lining the Chancellor’s coffers.
7. Make Plans for your Inheritance
Take the bull by the horns to plan your inheritance before it’s too late. By doing so, an extra £1.9 billion could be going to chosen heirs – rather than the taxman’s back pocket. So if you have assets over £325,000 (including your home) make sure you take action to plan your inheritance in 2009. Steps you can take to avoid IHT eating up 40% of your estate include writing a life assurance policy in trust and making a will.
8. Invest in an Enterprise Investment Scheme Company (EIS)
EIS is a government scheme that provides generous tax reliefs for investors who subscribe for shares in qualifying EIS companies. You can receive up to 20% tax relief on your normal Income Tax and any gains on your investment are free of Capital Gains Tax - provided the shares are held for 3 years or longer. You can also defer tax on capital gains you may have made on other assets, by reinvesting all or part of the gain into an EIS company within one year before or three years after the gain occurred.
NB EIS investment is high risk and you should obtain financial advice on whether this is suitable for you.
9. Claim Gift Aid Relief on your Charitable Donations
For every £10 you donate, the charity can reclaim the basic rate tax paid on your gift. If you give £100 to charity using Gift Aid, it’s worth £125 to the charity. In addition, for donations between April 2008 and 2011 the charity will get a separate government supplement of 3p on every £1 donated. And if you are a higher rate tax payer, you can claim back 20% of the gross donation – so £25 in this example. To claim back your refund, you need to complete a Gift Aid declaration (provided by the charity) and remember to include details of the donation in your Self Assessment return.
10. Join Traders Tax Club and Sign Up for timetotrade’s Pro Tax Package TODAY!!
Join the TradersTaxClub website www.traderstaxclub.com where you will find hundreds of articles, tips and guidance on managing and saving tax.
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