I Globalnews_signup

Tax efficiency tips in time for the financial year deadline

Tax efficiency tips in time for the financial year deadline

Listening to workshops at iGlobal’s The Great Big Indian Money Show gave me lots of insight and useful information, such us the importance of setting up a trust to hold money, and also that children have a £12,500 tax allowance – I emailed that nugget to my brother who is a father of twins.

This brought my attention to tax efficiency. Many of us pay more tax than we need to. Did you know you can claim some of it back?

Claim Tax Relief

Working from home has meant higher costs. You can claim for them! You can either claim tax relief at £6 a week from 6 April 2020 (you will not need to keep evidence of your extra costs), or the exact amount of extra costs you’ve incurred above the weekly amount (you will need evidence, such as receipts, bills or contracts).

Individual Savings Account

Another tax efficient vehicle is an individual savings account (ISA), which is a tax- protective “wrapper” around your money. The allowance stays at £20,000 this year. However it’s worth comparing the rates for ISAs and non-ISAs; as you are already allowed £1000 worth of interest on savings without paying tax, a cash ISA may not offer the best return. Although, if you are a higher earner or if you’ve got more than £1000 of savings interest coming in, then you should consider an ISA as a tax efficient way of saving money.

Stocks and Shares ISA

Another option is to look at stocks and shares ISAs for money you can invest in the medium to long-term due to the fluctuations of stock markets. You can choose what level of risk you’d like to invest at and the funds are selected accordingly. I have one with Fidelity; you get an overview of your holdings and information about areas e.g. sector or geographical that are over or under presented in your funds.

It’s also worth checking the rates on ISAs you have opened previously. I tend to go for a fixed rate to get a higher interest rate. But when it comes to the end of its term, the rate can go down drastically. If I have an ISA like that, I take the opportunity to transfer it into the new ISA (you need to get one that accepts transfers). It’s important not to close the ISA, you need to transfer it – this can all be done online via a transfer request form. The Nationwide is offering a £50 bonus if you transfer in an existing ISA of value greater than £10,000. You do need to be an existing customer with them though.

Lifetime ISA

If you’re planning on buying a house, and are aged 18-39, then it’s worthwhile opening a Lifetime ISA. Multiply AI, who participated in the iGlobal Money Show are offering a welcome bonus and 1.5% on their LISA – you need to get in quickly though (5 April at 3pm is the absolute deadline).

An accountant can advise on the best way to manage profits/taxes related to your business, including from a property letting business. They can tell you what allowances to claim and advise on the most tax efficient options. Use advisors that are Financial Conduct Authority regulated; don’t take their word for it, go check here: https://www.fca.org.uk/.

Pensions

Another vehicle to aid tax efficiency is to put money away into a pension. Every £100 costs you £80 due to the tax incentives. I also put away Additional Voluntary Contributions through the Prudential (as they looked after The Teacher’s Pension Scheme) - this has tax benefits as the contributions are taken before tax is deducted.

Inheritance Tax Gifts

If you are passing money onto the next generation, then you can make gifts of up to £3000 per annum each tax year (6 April - 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’ and you can carry any unused annual exemption forward to the next year - but only for one year. For more information, see here: https://www.gov.uk/inheritance-tax/gifts. It’s worth doing on a regular basis and it’s important to note that inheritance may still be payable at 40% on gifts given in the three years before you die. Gifts made three to seven years before your death are taxed on a sliding scale known as ‘taper relief’.

In the session, “Making your money work for you”, I learnt that trusts, particularly discretionary trusts, are a way to protect wealth and a mechanism for passing money on to your chosen beneficiaries. The money is taxed when it is paid out. It could be used, for example by a grandparent, to pass on rental income from a property to a grandchild. Remember children have a tax allowance, too!

Other allowances (if applicable):

  1. You may also be able to claim tax relief on equipment you’ve bought, such as a laptop, chair or mobile phone for work. There are other items you can claim for if they are solely for your work for example, uniform, tools etc. Have a look here: https://www.gov.uk/tax-relief-for-employees.

  1. The married couples’ allowance can be applied for through the government website: https://www.gov.uk/calculate-married-couples-allowance.

  1. Alternatively you can make use of the Marriage Allowance which lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner. This reduces their tax by up to £250 in the tax year (6 April - 5 April the next year). You can claim back as far as 2016. For more information, see here: https://www.gov.uk/marriage-allowance

  1. You can also claim if your partner has died. To call HMRC, telephone: 0300 200 3300 if you need to do this. You can use Relay UK if you cannot hear or speak on the phone, telephone: dial 18001 then 0300 200 3300.

Saroj Joshi is a money saving expert. In this regular iMoney Guru series for ‘iGlobal’, the Derbyshire-based adviser shares her wealth of experience in investing, saving, and the property market of providing support to the local Indian community with her handy tips.

*For specific queries or money saving tips, you can reach iMoney Guru at info@iglobalnews.com

Related Stories

No stories found.

Podcasts

No stories found.

Videos

No stories found.
iGlobal News
www.iglobalnews.com