Whether we're talking about the money we earn or the money our savings earn for us, the taxman takes as much as £4 in every £10. But while most of us dislike paying tax, eight out of ten of us bury our heads in the sand instead of doing anything to cut our rising personal tax bills. In fact as a nation we waste a staggering £7.9 billion each year by not taking tax action.
And yet, when it comes to your savings and investments, a few easy tax-planning measures can dramatically cut the tax you pay, giving a healthy boost to the returns you and your family get.
Each year we waste an average £160 per taxpayer in unnecessary payments and missed opportunities. So if we ' re prepared to squander this much through our own lack of planning - and higher rate taxpayers will waste much more besides - why do we get so wound up about paying our TV licence, car tax and other similar levies? The answer is simple - we can see these taxes going out, but it ' s often much harder to identify the areas where we' re wasting money ourselves. The information in this section will help you get to grips with the main issues involved in saving tax, everything from the benefits of Individual Savings Accounts (ISAs) to pensions planning. You don't need to be a financial genius to understand the basic principles, but by seeing a qualified independent financial adviser (IFA) you can see in detail how they apply to your unique financial situation, now and in the future - and ultimately decide what's right for you.
- IF YOU HAVE ASSETS OVER £285,000: Plan your inheritance - an extra £1.5 billion could go to chosen heirs by planning properly to avoid IHT liabilities. IHT is often lost through not writing life assurance policies in trust, not thinking about inheritance tax allowances and, worst of all, by not making a will at all.
- IF YOU SAVE: Use up your annual ISA allowance - £ 382 million in tax could be avoided by sheltering investments in ISAs, or moving savings from an ordinary deposit or savings account to an ISA. Also consider a Friendly Society savings account or products from National Savings & Investments as tax-efficient savings options.
- IF YOU ARE ELIGIBLE: Claim your tax credits - £2.3 billion of ‘free money' is up for grabs from HMRC and the DWP, in the form of Pension Credits, Child Tax Credits and Working Family Tax credits.
- IF YOU FILL IN A TAX RETURN: Sort out your self-assessment - £463 million waste could be wiped out by all forms arriving present and correct by the 31st January deadline. 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.
- ALL TAXPAYERS: Maximise your personal tax allowances - £546 million goes begging each year , £322 million through non-taxpayers failing to claim tax back on banks and building society savings accounts, and a further £224 million by taxpayers not transferring savings accounts to non-taxpaying spouses, if appropriate, so that the tax liability on the savings is lower, or none.
- IF YOU SAVE: Top up your pension pot - £739 million could be spared by optimising contributions to personal or company pension schemes, or making Additional Voluntary Contributions.
- IF YOUR EMPLOYER OFFERS AN EMPLOYEE SHARE PLAN: Take advantage of it - £171 million is up for grabs for the estimated 600,000 staff currently in Profit Related Pay schemes.
- IF YOU HAVE CAPITAL GAINS: Use your allowance efficiently , perhaps by transferring assets between spouses to make the most of both of your CGT allowances - £510 million could be saved in this way.
- IF YOU GIVE TO CHARITY: £1 billion more could go to good causes by using tax-efficient means of charitable giving, i.e. using a deed of covenant, Gift Aid or payroll giving.
- IF YOUR CHILD OR GRANDCHILD IS ELIGIBLE FOR A CHILD TRUST FUND: Avoid waste by using up the tax free saving potential - £125 million in tax could be saved in their first year of existence .
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