Ten ways to give less to the taxman

‘In this world nothing is certain but death and taxes’. So goes the famous quote from Benjamin Franklin. Indeed he was correct, but did you know that we waste almost £6 billion each year in unnecessary tax?

Though most of us admit to resenting paying tax, very few of us are doing anything to cut our tax bills. But when you consider how easy it is to shield money from the taxman, why are we letting this happen?

Try following these ten tax-planning tips and you may find yourself hanging on to more of your money – and keep it away from the tax mans greedy grasp.

How much are you paying in income tax? Check your tax code, and the amount of tax and National Insurance you pay. If you’re paying too much – apply for a rebate!

In addition, taking advantage of fringe benefits such as company cars could be a tax efficient way of effectively being paid more, without a salary increase.

Currently, you can earn up to 5.4% AER – this would provide you with £162 interest (on the full £3,000) over a year.

In addition to the £3,000 allowance for a mini cash ISA, you can also invest £3,000 (£4,000 from 6th April 2005) into the stock market via a mini-share ISA. Or you could ditch the mini ISA route and take out a maxi-share ISA, where you can invest up to £7,000.

Probably the most tax-efficient shelter for your money is a pension – especially lucrative if your employer contributes money to it on your behalf. For every £78 you pay in, the taxman will give you an extra £22 for nothing; higher rate tax payers can claim back a further £18 via their tax return.

Even non-taxpayers taking out a pension will receive a basic rate top up – putting in a maximum £2,808 each tax year will attract a boost from the Government of £792, taking the total money invested up to £3,600.

And, when you retire you’ll be able to take 25% of that big nice pension fund as a tax-free, lump sum.

Boo, hiss – the tax we love to hate – fundamentally because even though property prices have increased significantly over the past few years, the lowest stamp duty band has remained at £60,000 for almost 12 years.

But you may be able to save the money on stamp duty. There are rumours that the £60,000 limit could be raised in the forthcoming budget, so moving house after April 5th could save you some tax.

You can invest tax-free in National Savings and Investments Premium Bonds, Children’s Bonds or various savings certificates. In return for lending the government money, you are rewarded by receiving your interest tax-free (and in the case of Premium Bonds, by winning prizes). If you invested the maximum into all these, £90,000 could be kept away from the taxman or £93,000 if you get a cash ISA with them as well!

This is the tax that affects successful investors – everyone has a personal allowance and any gains made over that amount (currently £8,200) will be taxed! Only a small number of people pay CGT each year, but if you’re a long-term investor it’s something that could affect you when you want to cash up. You can avoid CGT by placing your investment into a mini or maxi-share ISA. You can also make use of your spouse’s allowance as spousal transfers are free of tax.

Probably our second most hated tax, Council tax, with its incessant increases, is slightly harder to save money on. You can claim a 25% discount if you live alone, and if you live with someone who is not your partner and cannot afford to pay, you can claim Second Adult Rebate. In addition, if you are on a low income, you may be able to claim council tax benefit.

The 2004/5 threshold for Inheritance Tax is £263,000; your heirs must pay a whooping 40% tax on anything in your estate worth more than this. You may think this won’t affect you, but when you realise you home is included it may change your mind!

If you will be affected by Inheritance Tax it may be worth paying a solicitor to prepare you a tax-efficient will. Married couples can utilise both of their personal thresholds and create a nil band trust. Other methods to avoid paying are to give property away, either directly, or by putting it into a trust for at least seven years before your death.

Everyone in the UK may earn £4,895 before they pay any income tax. Therefore, where savings are concerned and you live with someone, you should consider both of your tax bands.

For example, if one of you pays tax and the other doesn’t (and you trust each other) by placing your savings in the non-tax payer’s name you can benefit from not paying any tax on your savings. By not carrying out this simple bit of tax planning, we’re losing £128 million each year.

Finally, you may be able to buy shares in your company (free of tax and NI liability), when it’s possible to avoid paying income tax and CGT on any profits made!