Ilyas Patel Accountants in Preston
The UK tax system is notoriously complicated but understanding specific loopholes can save you a significant amount of money.
Here are some strategies to consider before potential changes by the government might close these tax-saving avenues.
(Read Time: Approx. 6 minutes)
By leveraging various tax-free allowances, a higher-rate taxpayer can effectively earn up to £26,070 tax-free annually.
Let’s take a brief look at some of these allowances and schemes created by HMRC which you can take advantage of to increase the amount of money you won’t be taxed on.
The standard amount of income that can be earned before paying any income tax.
You can take advantage of this by ensuring your total income stays within this limit or by making pension contributions to reduce taxable income.
The amount you can earn tax-free from renting out a furnished room in your home.
To benefit, you need to rent a furnished room in your main home to a lodger.
The annual tax-free allowance on profits made from selling assets like stocks, bonds, or property not used as the main home.
You can utilise this by planning the sale of assets to stay within the allowance limit each year.
The tax-free allowance for income received from dividends.
To take advantage, invest in dividend-paying stocks and manage your portfolio to keep dividend income within this threshold.
The amount of income from property rentals that is tax-free.
This can be utilised by earning rental income from a property and ensuring it does not exceed the allowance.
The amount of tax-free income for casual or miscellaneous trading, such as side jobs or online sales.
You can take advantage of this by engaging in small-scale trading or side jobs and keeping your earnings within the allowance.
The tax-free allowance on interest earned from savings.
You can benefit by keeping your savings in interest-bearing accounts and ensuring the interest does not exceed the allowance.
There are also several other methods to pay less tax on different taxes, such as Inheritance Tax, and Capital Gains tax.
Let’s briefly cover some methods of tax allowances, and tax saving methods, for these various taxes.
Inheritance tax is typically set at 40%, with each individual having a £325,000 tax-free threshold.
This threshold can increase by £175,000 if passing your primary residence to a direct descendant, making a total of £500,000 tax-free.
For married couples or civil partners, this can be doubled to £1 million.
Additional exemptions include:
The seven-year rule for gifts allows you to give away unlimited amounts tax-free if you survive for seven years after making the gift.
There are also specific annual exemptions:
If you give regular gifts from your surplus income (after living expenses), these can also be exempt from IHT, provided they do not affect your standard of living.
Capital gains from asset sales are taxed at lower rates compared to income.
Basic-rate taxpayers pay 10% on most capital gains, while higher and additional-rate taxpayers pay 20%.
Gains from selling properties that are not your main home are taxed at 18% and 28%, respectively.
Each person gets a £3,000 annual allowance.
Married couples can double this by transferring assets between them before selling.
Up to £20,000 can be invested annually, with all gains being tax-free.
Vintage car owners can benefit from significant tax savings:
Ensure all Real-Time Information (RTI) filing obligations for PAYE are met.
Confirm that all employees are paid at least the National Minimum Wage or National Living Wage and claim the Employers’ NIC allowance if available.
Earning above £100,000 results in the loss of the £12,570 personal allowance at a marginal rate of 60%.
Parents earning over this threshold also lose eligibility for free childcare and tax-free childcare benefits.
Making use of these tax-free allowances and exemptions requires a detailed understanding of the UK tax system.
With other types of tax, making use of smart tax-planning strategies to reduce the liabilities helps you to save money on tax.
For expert assistance in handling these complex tax planning strategies, get in touch with us here at Tax Expert.
We’re experienced in supporting a variety of people on a variety of incomes and planning their taxes in the most efficient way.
If you’re a high earner, and you’re looking for a way to minimise the amount of tax you pay, send us an email at info@taxexpert.co.uk, or fill in our form here.
Give us a call today at 01772 788200, or on our 24/7 WhatsApp at 07787 010190.
Kind regards,
Ilyas Patel