Whether you’re a part-time employee, a freelancer, or a CEO, there are lots of ways to legally reduce your annual tax bill and hold onto more of your hard-earned money. Below, we’ve put together six of the most useful tax-cutting techniques to give you a headstart…
Start saving into a pension
If you’ve not yet started thinking about your pension, it’s time to spend some time reading through your options and saving for your retirement today. If you pay into your employer’s pension scheme, you’ll be paying before any tax is charged, and the government will top up your pension with tax relief, saving you money and reducing your annual tax contributions.
Pay your tax on time
If you’re self-employed or have to submit an annual self-assessment tax return, do it on time. In the 2017-18 Self Assessment Tax Year, an eye-watering 731,186 people submitted their returns late, resulting in an immediate £100 fine. For online submissions, you have until the last working day in January every year, and if you’re late, you’ll pay further fines and interest.
Get an ISA
Make sure you take advantage of your tax-free ISA allowance; that’s £20,000 into an account every year, either into a standard savings ISA, a stocks and shares ISA, or split between both. We recommend opening a Lifetime ISA, where you can start saving for your retirement and receive a 25% government bonus of up to £1,000 per year. So, you’ll not only pay zero tax on your savings or its interest, but the government will pay you for saving!
Change your payment structure
If you’re a self-employed contractor, consider working with an umbrella contracting company rather than doing your own accounts. That way, you’ll be treated as an employee rather than self-employed, meaning you’ll receive a monthly salary with your tax and national insurance contributions automatically deducted. Depending on your annual income, this can be a way to reduce your tax burden (and cut down on endless admin and paperwork) but speak with a professional before you make the switch to ensure you’re making the most efficient choice.
Claim relief on buy-to-let mortgages
If you’ve invested in property, you might feel like you’re being hounded by the government right now. One benefit of BTL mortgages is that you can claim tax relief on the interest you pay. In the coming years, this will change and you’ll receive 20% tax credit on mortgage interest instead, so speak with your accountant to ensure you’re benefiting from tax breaks.
Cut future inheritance
If you make a gift to your children or partner seven years before you die, they aren’t counted towards your inheritance-tax bill, so make as many potentially exempt transfers when you’re able to do so. Individuals are also able to give away £3,000 a year before having to worry about inheritance tax, and an unlimited number of smaller gifts of up to £250 each to different people, so consider spreading your wealth to reduce your family’s future tax burden.
Were you surprised to hear about any of these tax breaks? Let us know if you have any other tips to add and check back to the blog soon for more advice on wealth management.