Tips to Help you save Tax

We now know that taxes will be raised.

With inflation (the rate at which prices rise) also higher than it has been, the cost of living is putting significant strain on household budgets.

This means that it is more important than ever to ensure that your money is working hard for you. One way to accomplish this is to avoid paying more tax than necessary.

In this article, we will look at some simple and effective ways to protect your savings from taxation right now.

Remember that ISA, Lifetime ISA, pension, and tax rules are subject to change, and that benefits vary depending on your circumstances.

This isn't individual advice. Our accounts are designed for people who prefer to make their own choices. If you're unsure whether a particular course of action or investment is appropriate for you, seek advice. We are not tax advisors; therefore, if you require assistance with tax calculations, please contact an accountants in London.

1. Maximize your ISA allowance.

The ISA allowance is one of the UK government's most generous tax breaks. Each tax year, if you are over the age of 18 and a UK resident, you can contribute up to £20,000 to a Stocks and Shares ISA.

Your funds are then exempt from UK income and capital gains tax. As a result, if your investments appreciate in value, you will not have to pay capital gains tax when you sell them. In addition, if your ISA investments generate income, you will not be subject to UK income tax on that income. This could be especially useful if you are likely to be affected by the upcoming dividend tax increase.

Remember that, unlike cash, all investments can lose as well as gain value, so you may get back less than you put in.

This tax year ends on 5 April, so if you want to use your ISA allowance, you should do so as soon as possible.

2. Consider contributing to a pension.

Contributing to a pension is one of the most tax-efficient ways to save for retirement.

If you are a UK resident under 75, you can generally contribute as much as you earn to pensions each tax year and receive tax relief. Most people can contribute up to £40,000 per year (the current annual allowance), but this depends on your income and whether you've already taken money from a pension.

You can get a tax break of up to 45 percent on anything you pay in. For example, if you contribute £800 to a pension, such as a Self-Invested Personal Pension (SIPP), you will receive 20% (£200) in basic-rate tax relief, for a total contribution of £1,000. Higher-rate taxpayers can claim an additional £200 (20 percent) in tax relief through their tax return, while 45 percent rate taxpayers can claim an additional £250 (25 percent).

To claim the full tax relief on your tax return, you must pay enough tax at the higher or additional rate. For Scottish taxpayers, different rates and tax bands apply.

Normally, money in a pension cannot be accessed until the age of 55. (rising to 57 from 2028).

3. Do not overlook capital gains tax.

Every year, you can realise a certain amount of profit without having to pay capital gains tax (CGT). The allowance for this tax year (2021/2022) is £12,300. Remember that if you make a profit on anything held in an ISA or SIPP, it will not count against your allowance. Any gain above the allowance that falls within the basic-rate tax band is normally subject to a 10% tax. Any portion of the gain that falls within the higher- or additional-rate bands is normally taxed at 20%.

Assuming you're a higher- or additional-rate taxpayer with no allowable losses, if you have gains of £24,600 from investments and decide to sell all at once, you'll pay £2,460 in capital gains tax (£24,600 minus £12,300, taxed at 20%).

However, if you sold to spread the gains over two tax years (realising gains of £12,300 each year), you would pay no tax if the CGT allowance remained unchanged.

Residential property is subject to higher CGT rates. The amount of CGT paid by Scottish taxpayers is determined by the income tax bands in the United Kingdom.

If you want to take advantage of this year's allowance, you must do so before the end of the tax year on April 5, as it cannot be carried forward to the following year.

4. Distribute your assets

If you're married or in a civil partnership, you should be aware of the special rules regarding asset gifting.

You don't have to pay capital gains tax on assets you give or sell to your husband, wife, or civil partner unless you meet the following conditions:

In that tax year, you divorced and did not live together at all.

You gave them merchandise to sell on their behalf.

This gives you the option of dividing your assets to fully utilise your CGT allowances. For example, a married couple could realise gains of up to £24,600 without paying capital gains tax.

If your spouse or civil partner later sells the asset, they may be required to pay tax on any gain. Their profit will be calculated based on the difference in value between when you first owned the asset and when they sell it.

You may also benefit if your tax brackets differ. If your spouse, for example, is in a lower tax bracket than you, they may pay less tax on investment income received outside of a tax wrapper.

It's important to remember that once an asset has been gifted, it's usually impossible to get it back.

It is necessary to link two HL Fund and Share Accounts in order to transfer investments between them online. The person giving the stock must be able to view the recipient's account.

We also have accounting software to help you manage your accounts in London.