Knowing how to take advantage of the various tax free allowances available in the UK can be complicated. There are personal allowances and businesses allowances that, if used properly, could benefit you by several thousand pounds a year. However, it is always best to take the advice of a chartered accountant or specialist tax advisor to avoid falling foul of HMRC regulations.
Many allowances change every year and those quoted in this article refer to the 2014/2015 tax year ending on 5th April 2015 so make sure you check current allowances.
Although the rules are complicated and best left to an accountant to deal with it is still worth knowing some of the areas where you can save tax.
Capital Gains Tax Exemption
Every individual has a capital gains tax annual exempt amount so if your spouse or civil partner is not using their allowance it is worth considering transferring some of you assets to them. They do not necessarily have to be transferred into your partner’s sole name as many assets can be held in joint names and then the tax exempt amount is effectively doubled as you can use the individual allowance of both of you. This is because transfers of assets between legal partners is allowed without the transaction having any gain (or loss).
Marginal Rates Of Tax
The UK currently has 3different income tax rates so if one spouse or civil partner is in a higher tax bracket than the other,transferring investments to the lower earning individual will save on the overall tax bill. This does, of course, require putting the asset or investment in the partners name and thereby relinquishing any control over it so should only be considered in a stable relationship.
Everyone in the UK who can take advantage of the new ISAs (individual Savings Accounts) should be doing so because of the benefit of tax free interest on savings and investments and tax free gains. The new ISAs (from July 2014) are much less complex than they used to be and the annula limit can be invested as cash, so there is no reason to not purchase one if you have the funds available. No knowledge of shares or other investments is required to take advantage of the tax free benefits, although stocks and shares can still be purchased in a new ISA if so desired, and these will also benefit from being free of capital gains tax.
Savings Account Interest
One of the simplest ways to save tax, yet often overlooked, is to make Tax Advisors sure you are not paying tax on your savings account interest if you are not a UK tax payer. By default, interest is paid with the tax, at the basic rate, already deducted so you will need to speak to your bank or building society to have this changed (it involves filling in a simple form from HM Revenue & Customs to register to have the interest paid without tax deducted). You can also reclaim any tax that you may have already paid.
Mortgage Interest Rates
In the current economic climate the interest rate on your mortgage is almost certainly higher than the interest onany savings account so think about using some of your savings to reduce your mortgage. This way the interest you earn on your savings will be less but you will consequently be paying less tax on the interest. This is a very personal decision depending on individual circumstances but if you feel you have some spare funds then it is definitely worth considering.