02/03/2023
Keep More Of Your Cash Out Of The Taxman’s Grasp
News Reporter
No one likes paying more tax than they must, so with the end of the financial tax year due at midnight on April 5, time is running out for you to ensure you have taken advantage of all your available tax breaks.
With taxes at their highest level in years, and money tight for everyone, it’s more vital than ever that you don’t miss out and end up gifting the taxman more than you need to.
“As the cost of living crisis continues to bite, it’s more important than ever that people try and maximise their tax position as it’s far better that their money stays with them, rather than going to the taxman,” says Matt Bartle, director of products at Leeds Building Society.
“The tax year end clock is ticking, so people need to act sooner rather than later. If someone, for example, wants to use some, or all, of their annual tax- free ISA allowance, they should make sure that they open a suitable ISA product before April 5. This will ensure that their savings are tax efficient.”
We’ve teamed up with Leeds Building Society to bring you the following top tips to help you hang on to more of your hard-earned money.
1 Use your Individual Savings Account (ISA) allowance
If you haven’t used your ISA allowance this current tax year, remember that you can invest up to a maximum of £20,000 each year in either a cash or stocks and shares ISA, or a combination of the two. Whatever tax band you fall into, the interest on an ISA is completely tax-free. But remember unless you act by April 5, you will lose this year’s allowance.
The real beauty of ISAs is that the interest from your ISA doesn’t count towards your Personal Savings Allowance, so this allows more of the interest you earn on your savings to be tax free.
The Personal Savings Allowance (PSA) was introduced in 2016 and means basic-rate taxpayers can earn £1,000 of interest every year on their savings before they are taxed. For those taxpayers who pay tax at 40%, the allowance is lower at £500 a year. Taxpayers paying the highest rate of tax always pay tax on their savings. ISAs are totally tax free.
When interest rates were low, most savers would have needed around £75,000 in their savings accounts before they would use up their PSA allowance. But now rates have risen, anyone with around £25,000 in savings could be liable for tax. For higher rate taxpayers this falls to a savings pot of around £12,500 – hence the sudden increase in the number of people trying to protect their savings from the tax man by opening ISA accounts.
2Check your tax code is correct
It always makes sense to check that your tax code is correct as this will determine how much pay you receive and how much tax you pay to the taxman. Each year millions of tax codes are wrong. However, it’s not your employer’s responsibility, nor is it the taxman’s responsibility to make sure your tax code is correct – it’s yours.
So as the tax year end approaches, check your pay slip to see what tax code you have. There are lots of very useful websites which explain how to check your tax code, such as on the Money Saving Expert website at moneysavingexpert.com/family/check-tax-code/
If your tax code is wrong the first thing to do is tell HM Revenue & Customs (HMRC) you think your tax code may be wrong, and why. It’s probably simplest to call HMRC on 0300 200 3300 so you can resolve your situation with a human and ask questions along the way. Alternatively, you can contact HMRC online (gov.uk/tax-codes/how-to-update-your-tax-code) to let it know your tax code is wrong.
3Top up your pension
Topping up your pension will ultimately reduce the amount of tax you will pay. There are annual allowance limits in place so it’s always worth seeking advice if you are thinking of doing this.
The current annual allowance for pension contributions is £40,000 and you can bring forward unused allowances from the previous three tax years if you were a member of the pension scheme within those years.
Topping up your pension, even by small amounts, can really add up over time so it may be worth speaking to your employer or contacting your pension provider. Each £100 contribution only costs a basic rate taxpayer £80, or £60 for a higher rate taxpayer.
4Make use of your allowances
You might be able to reduce your income tax bill simply by making sure you are claiming for the correct allowances. For example, the marriage allowance applies to married couples and civil partnerships in which one is a non-taxpayer and the other a basic rate taxpayer. It works by letting the non-taxpayer transfer £1,260 of their personal allowance to their partner, which could save them around £250.
Visit gov.uk/marriage-allowance to apply, call 0300 200 3300 or write to HM Revenue and Customs, BX9 1AS.
There are tax-deductible expenses, where you can claim tax relief for amounts you have paid out in relation to your job for items such as mileage for business travel, and business trip expenses such as overnight accommodation, public transport and food.
As well as costs relating to the cleaning, repairing or replacing of protective clothing and uniform that’s necessary for your job.
This includes expenses you have paid yourself and for which you have not had any reimbursement from your employer and where your employer has reimbursed you and you were taxed on the reimbursement.
You may also be eligible to claim tax relief on some of the expenses you incur when working from home, although not if you do so voluntarily. This can only be for things such as lighting, heating and telephone costs to do with your work, not things related to both work and personal use such as broadband.
You can either claim tax relief on £6 a week from April 2020 – you don’t need to keep evidence of the extra costs. You’ll need to have evidence of costs and spending for claims over £6 a week. Visit gov.uk/tax-relief-for-employees/working-at-home.
There’s also the blind person’s allowance, which offers a higher personal tax allowance of £2,600 more, £15,170 in total, if you or your spouse or registered civil partner, are blind or have severely impaired sight.
In the same way as the marriage allowance, any unused blind person’s allowance can be transferred to a spouse or civil partner.
5Get tax relief on Gift Aid donations
Donations to charities by individuals are tax free, so whenever you make a donation, try and make sure you tick the ‘Gift Aid’ box. This allows the charity to claim an extra 25p for every £1 you give. So, if you were to donate £100, they can claim back gift aid worth £25, so get £125 at no extra cost to you.
Tax breaks are even more attractive for higher rate taxpayers. You can claim the difference between the rate you pay and basic rate on your donation. For example, if you donate £100 to charity – the charity can claim Gift Aid to make your donation £125.
If you pay 40% tax, you can personally claim back £25 (£125 x 20%). According to HMRC data, Gift Aid was worth £1.3billion to charities for the tax year ending April 2022. Visit gov.uk/donating-to-charity/gift-aid.
6 Make gifts and reduce your inheritance tax bill
Making gifts to family members can reduce a potential inheritance tax (IHT) bill. Every adult can gift up to £3,000 a year IHT free, so couples can gift £6,000 by April 5. You can also use any unused allowance from the previous tax year, which would allow an individual to make a gift of £6,000 (£12,000 for couples).
You can also make further IHT-free gifts of up to £250 per person, £5,000 to a person on marriage, or £2,500 to a grandchild and £1,000 to a relative or friend.
There is also a seven-year rule which means that gifts are exempt from IHT if you live for at least seven years after making the gift. It’s always worth checking with tax planning experts to make sure any plans you have are tax efficient.
It’s also worth remembering that if you have children or grandchildren, you might want to consider opening a Junior ISA for them. Contributions are limited to £9,000 per tax year, but it has the same tax benefits as an adult ISA.
You can make contributions into a Junior ISA on behalf of your child, but your child can take control of the account when they reach 16.
Like the adult ISA you cannot roll over any unused allowances from previous tax years.
Millions of refunds are due to people being assigned the wrong tax code - use the tax rebate calculator to see if you’re owed £1,000s. Incl 1257L code explained.
