Reduce your tax bill

19 March 2008

Paying tax is a fact of life but there are plenty of ways you can reduce your tax bill with a minimum amount of effort on your part. Here are five simple ways to cut your tax bill.

1. First off, check your tax code on HM Revenue and Custom’s website. Your income tax allowance is reduced by any employer benefits – such as a company car or health insurance – so if your circumstances have changed then you could be paying over the odds.

2. Use your ISA allowance. Unlike traditional saving or investment accounts, money in an ISA will grow free of further income or capital gains tax. Until 6 April, anyone over the age of 18 can invest up to £7,000 in ISAs - either £3,000 in cash and £4,000 in stocks and shares or the full £7,000 in stocks and shares. And from 6 April, you will have an increased tax-free allowance of £7,200 to use.

3. Give to charity in a tax-efficient way. Dropping the odd quid into a charity collection box is very commendable – but with a little bit of effort every pound you donate could go a lot further for the charity in question. For example, Gift Aid means the government treats the money as if the donor had already deducted basic rate tax from them. The charity can then reclaim this tax to increase the value of a donation. Find out other ways to give to charity without giving to the taxman.

4. The taxman will take 40% of your estate above £300,000 (rising to £312,000 from 6 April) when you die. One way to avoid inheritance tax is to give your money away before you die, although there are rules restricting this practice. It is best to seek professional advice from an estate planner to prevent the inheritance you intend to leave your loved ones going straight into the pockets of the Treasury.

5. Finally, saving in a pension is the most tax-efficient way to plan for retirement because the government offers tax-relief on contributions. For example, every pound a basic rate taxpayer puts into their pension pot can be claimed back at 22% (falling to 20% 2008/09). So if you don't save for retirement then you are missing out on this tax-break.

More ways to get your own back on the taxman

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