In the words of Benjamin Franklin, in this world, nothing can be said to be certain except death and taxes. Indeed for many, the thought of looming tax bills is every bit as frightening as the Grim Reaper itself!
With this in mind, we have put together 3 easy steps that you can take today to help you save money on tax – without upsetting the HMRC.
Council tax re-banding
In 1991, the UK government introduced a nationwide banding system on all residential property. Every home was put into a band based on its value and occupants started paying tax according to this band. However, the process was poorly planned and as a result many homes were hastily shoved into the wrong band, leaving unsuspecting residents with higher council tax bills than they ought to have been paying.
An overpayment of £100-£400 per month over the course of 12 years amounts to an enormous rebate. The good news is, if you find out that your home has been incorrectly banded, you can not only save yourself future overpayments, but reclaim any amount owed to you since 1993!
Simply estimate the value of your home in 1991 and compare it with other properties on your street using the Valuation Office Agency (England and Wales) or Scottish Assessors Association (Scotland). Check these values against the council tax bands in 1991 (www.moneysavingexpert.com) and, if you suspect your banding is incorrect, challenge it with your Local Listing Officer (England and Wales) or your Local Assessor (Scotland). Beware: your own and sometimes even your neighbours’ bands can be moved up as well as down, so only make a challenge if you have done your research, or else you might end up with much bigger problems in your neighbourhood than your council tax bills!
It might not be something you want to think about, but inheritance tax and legacy planning is one of the easiest ways to save potentially enormous amounts of money for your loved ones once you’re gone. However you feel about inheritance tax, it makes sense to save where you can. The first thing to do is to check that you are using your nil-rate tax band to its full potential. The current threshold is £325,000, set to increase to £329,000 over the next 4 years.
There are a number of other things you can do. For example, the standard 40% rate of tax is reduced to 36% if you donate 10% of your assets to charity. Not a philanthropist? Any assets left to your husband or wife are exempt from tax, as are cash gifts – as long as you then survive for 7 years (a condition presumably designed to prevent gold-diggers from doing away with their partner)! Not married? Well, a cash gift from your parents will make your husband or wife-to-be the grateful recipient of up to £5,000 tax-free (thank goodness for that 7-year clause…)!
Beyond this, the first £3,000 you give away each year is tax exempt, an allowance which can be carried forward by one year. On top of this, you may give a one-off tax-free cash gift of £250 per person per year to an unlimited number of recipients. We’re sure your grandkids will thank you for it.
All of these savings can really add up to take the sting out of inheritance tax.
An obvious one, perhaps, but the rules surrounding Individual Savings Accounts change each year, and understanding how can help you to save even more.
The 2013/14 tax year began on April 6th, and brought with it a new £11,520 ISA allowance. Savers have the option to put up to half of their allowance in a cash ISA, avoiding tax charges of between 20% and 45%. You can also put up to the full £11,520 into a stocks and shares account, reaping the additional benefit of capital gains tax exemption on any returns that may arise from your investment. Not only do you avoid tax charges on your deposit, but collect competitive interest payments every month.
However, banks are typically quick to lower their best interest rates, meaning that savers slow off the mark are likely to miss out on the most rewarding ISAs. If you have any spare cash, act immediately at the start of the new tax year to secure the best deals.
Rather than stuffing your cash under your mattress and hoping for the best, we hope these 3 easy tax savings tips will help you to cut down your bills and enjoy more of your hard-earned wealth.
Tax saving advice courtesy of Strategic Tax (www.strategictax.co.uk).