Chartered Financial Adviser’s top 10 tax saving tips

Fresh from a landslide election victory, the Conservative government will hold their first budget on Wednesday 11 March.

The Conservative manifesto was thin on the ground when it came to policy detail. There was disappointment for higher earners when Boris Johnson’s initial pledge to increase the higher income tax threshold to £80,000 was subsequently dropped, but they have pledged not to raise National Insurance, income tax or VAT rates.

No one can know for sure what tax changes may be announced in March but whatever happens, there’s still time to take advantage of the tax allowances of the current tax year. Here are our top 10 tax tips to consider taking advantage of now.

Remember tax rules can change and their benefits will depend on your individual circumstances. We can advise you on how to make use of your tax allowances through financial planning but if you need complex tax calculations, we recommend consulting an accountant. This article is not personal advice.

Any investments you make can fall as well as rise in value so you could get back less than you put in.

Tip 1 – Make use of your ISA allowances

There is no UK income tax or capital gains tax on assets held in an ISA, making them one of the most tax-efficient ways to save. You can invest up to £20,000 into ISAs this tax year, that’s £40,000 per couple.

Tip 2 – Make pension contributions

Investing in a pension for retirement is one of the most tax efficient ways to save. If you're a UK resident, under age 75 and not drawing your pension, the general rule is you can contribute as much as you earn to pensions this tax year, effectively capped at £40,000. Those with “adjusted income” of £150,000 or more could see a lower, tapered annual allowance. Broadly speaking, adjusted income is your total taxable income (including salary, dividends, rental income and savings interest) plus the value of any employer pension contributions.

Remember, money in a pension cannot normally be accessed until age 55 (57 from 2028).

Tip 3 – Use any available carry forward

If you have unused annual pension allowance from the past three tax years, you may be able to use it this year, effectively increasing your £40,000 allowance. Any personal contributions are still limited by your earnings.

Tip 4 – Pay into a pension for your partner

Investing in a pension for a non-earning partner is one of the more generous pension give-aways. Non-earners under 75 that are UK resident can make a £2,880 pension contribution and the government adds £720, even if the individual pays no tax. From age 55 (57 in 2028), 25% of the value of the pension fund can normally be taken as tax-free cash, with the balance being taxable. However if further withdrawals fall within the individual’s personal allowance each year, these will also be tax free.

Tip 5 – Use your capital gains tax allowance

Every tax year you can realise a certain level of gains on assets held outside an ISA or pension without paying capital gains tax (CGT). This tax year the allowance is £12,000. Using your CGT allowance can save you up to 20% capital gains tax on any gains on shares or funds.

Tip 6 – Register losses and use them to offset gains

Once registered, losses can be used to offset gains at any time in the future, effectively reducing any future capital gains tax liabilities.

Tip 7 – Transfer assets to your spouse or civil partner

If your spouse pays less tax than you, or no tax at all, then you could be losing out on valuable allowances each year. This includes the personal allowance, savings allowance, dividend allowance and capital gains tax allowances that are not being used. You can transfer assets to a spouse free of capital gains tax.

Tip 8 – Inheritance Tax – get gifting

Everyone can give away up to £3,000 a year (and up to £3,000 in respect of the previous year if this allowance was not used), meaning a couple could give away up to £12,000 now and a further £6,000 on 6 April, potentially saving up to £7,200 of IHT over two tax years. Another lesser known IHT reducing measure is the normal expenditure out of income exemption. If you have surplus income available each year from salary, pension, investments or rental income, you can give this away and as long as it is a regular payment, it is considered immediately outside of your estate.

Tip 9 – Preserve your pensions

Most pensions are not counted as part of your estate when you die. If you’re already in retirement, or planning to retire soon, and have non-pension savings and investments that could be used to provide an income instead, using those could prove to be enormously tax efficient. Your pension pot could then be passed to your spouse and children, or any other beneficiary, free of inheritance tax. If you die before age 75, they could receive it free of any tax at all.

Tip 10 – Pay into a Lifetime ISA

The Lifetime ISA (LISA) can be opened by anyone aged between 18 and 39 but once open you can continue to pay into it up to age 50. You can save up to £4,000 every tax year towards a first home or retirement, with the government adding a 25% bonus on top of what you save. Plus as it's an ISA, any growth or income is also free of UK tax.

You can withdraw money from a Lifetime ISA to buy your first home (worth up to £450,000), or at age 60. Other withdrawals will usually incur a 25% government withdrawal charge, so you could get back less than you put in.

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