We would all like to pay a little less tax to the tax authorities and with careful planning, you can do just that whilst staying, of course, completely within the law and abiding by the tax regulations. These ways of saving tax refer to the tax jurisdiction of the United Kingdom so may not be relevant if you live elsewhere in the world. You should always check your countries local tax regulations.
One of the easiest ways of saving tax is to make full use of your available allowances.
If you have a spouse (or civil partner) who has no income then transferring savings and investments that are currently paid interest after the deduction of tax will save you the tax on that interest. Even if you only have a small amount of savings the tax saved can mount up quickly. Of course, you would want to trust your other half completely before embarking on this strategy especially if you have considerable investments.
From 6th April 2015 new rules came into force that will mean a spouse can transfer 10% of their personal allowance to the other partner, provided you are not a higher rate tax-payer. This would only be beneficial if one partner had an income that didn’t allow full use of their own personal allowance but the other did.
For high earners with incomes over £100,000 per year their personal allowance is reduced gradually for every £1 over that limit until the point where there is no personal allowance for those earning over £120,000 per year (in the 2014/15 tax year). There are several ways for such high earners to retain their personal tax-free allowance of £10,000 per year. One is to transfer any savings and investments that produce an income to their spouse or civil partner to bring their annual income back below £100,000. Another is to make contributions into their own pension, again of an amount that will reduce their yearly earnings below the threshold.
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Age-related Personal Allowances
Currently, anyone born before 6th April 1948 is entitled to a higher personal tax-free allowance and those born before 6th April 1938 to a higher allowance still. However, these allowances are gradually being phased out by keeping the amount at the same level until the non-age-related allowance is at the same level.
While this allowance is still available the same strategies to maintain the full allowance apply as for the standard personal allowance.
Annual CGT Exemption
Anyone with a portfolio of investments generating a capital gain should make sure to use the annual capital gains tax exempt amount.
For the 2014/15 tax year in the UK any sales of assets where the gain is less than £11,000 will benefit from this amount being tax free. Selling some assets or shares each year where the gain is below this threshold will allow you to take tax free profit from your portfolio over a period of time. The timing of selling shares is, therefore, crucial if you want to save tax.