No one likes tax, but did you know you could be paying far more tax than you need to?
By using tax-efficient savings vehicles and government allowances you can maximise your chances of reaching your financial goals. In this article, we'll explore four simple opportunities for you to boost your take-home pay.
Put your money in ISAs
An Individual Savings Account (ISA) is an account that lets you save and invest your money, and earn a tax-free return.
The total amount you can save in ISAs (the ISA allowance) in the current tax year is £20,000. You can spread your ISA allowance across a number of different ISA types but you can only invest in one of each type of ISA within one tax year.
For example, in one tax year (April to April) you can split your allowance across a cash ISA and a stocks & shares ISA, but you can't invest in two different cash ISAs.
The different types of ISA are;
- Cash ISA
- Stocks & Shares ISA
- Help-to-buy ISA
- Junior ISA
- Lifetime ISA
- Innovative Finance ISA
Not sure which is which? Try our article which gives you the low-down on ISAs.
Pay into a pension
Unless you've opted out, then you have been auto-enrolled into a workplace pension. The good news is that the money that you pay into your pension will grow free from tax. More so, the contributions your employer makes receive a 20% bonus from the government called 'tax relief.'
Tax relief is essentially free money from the government – a reward to you for saving for your future.
If you're a UK taxpayer then you'll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. Any contributions you make over this amount won't attract tax relief.
When you start withdrawing money from your pension after age 55, you can take 25% of it tax-free and the rest is taxed as income.
Use government tax allowances
There are lots of tax breaks available in the UK that you might be entitled to.
Marriage allowance: If you earn less than the £12,500 Personal Allowance (the amount of income you earn before you have to pay income tax), then you can transfer £1,250 of your allowance to your spouse, as long as their income is between £12,501 and £50,000. By doing this, your spouse can save up to £250.
Child benefit: From 6 April 2020, this is paid at £21.05 a week for your oldest child and £13.95 a week for other children. It's worth bearing in mind that if either you or your partner earn between £50,000 and £60,000 a year then you'll have to pay a portion of your child benefit back in additional income tax. If one of you earns over £60,000, you'll have to repay it all.
Child tax credit: If you have children and you're on a low income, you could be eligible for child tax credits. The amount you'll get depends on a range of factors such as whether your child has a disability, your income, and how many children are living with you.
Check your tax code
If you've moved jobs recently or been promoted you might have been issued with the wrong tax code. This means you could be paying too much tax through your payslip.
People who have been put on an “emergency" tax code could be losing as much as £2,700 a year, so it's definitely worth speaking to your payroll department if you think something is amiss.
These relatively simple measures could potentially save you hundreds, if not thousands, in tax each year.
For more information on tax allowances, and to check your eligibility, the www.gov.uk website is a good place to start.
If you're confused about your tax position you might want to consider speaking to an adviser.
*ISA limits are regularly reviewed, any figures quoted are accurate at the time of publication.
Our articles cover a wide range of mainstream financial products and employee benefits. Terms and conditions of each product may vary depending on your provider. Please ensure you check the specific terms and conditions of any financial products and employee benefits available to you from your employer.