Top income tax tips

Wednesday, 2 March 2016

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Independent financial advice, Wetherby, Leeds IFA

No-one likes paying more income tax than they need to, so here are some quick tips on how the current rules work and how to avoid tax where possible:

  1. Most people pay no tax on the first £11,000 they earn, then 20% tax on earnings up to £43,000 and 40% tax above that.
  2. National insurance is effectively an extra 12% tax on most people’s income, meaning that combined with income tax the real tax rate that most people suffer is 32%.
  3. If you earn less than £16,000 per year in a job then up to £5,000 of savings income (from bank accounts etc.) is tax free.
  4. The first £1,000 of savings interest is tax free for any basic rate taxpayer (£500 for higher rate taxpayers) – this will make cash ISAs pointless for most people, so focus on getting the best rate possible whether the account is an ISA or not.
  5. By giving even a small share in an asset (such as a house) to your spouse or civil partner, they can declare half the income or rent that the asset generates as their income rather than yours, which could save you tax.
  6. If you earn more than £50,000 and either you or your partner claim child benefit, you will see some of this child benefit claimed back via a tax charge. Contributing to a pension can stop this happening.
  7. If you are a non-taxpayer then you can transfer some of your personal allowance to your spouse, if they are a basic rate taxpayer. That could save them more than £200 in tax.
  8. Anyone born before 6th April 1938 used to get a slightly higher personal allowance than younger people, but this will cease to be the case from 6th April 2016.
  9. If you earn more than £100,000 then you start to lose your personal allowance. By the time you earn a bit over £120,000 you have lost it all. The effective tax rate between £100k and £120k is therefore 60%. Contributing to a pension can stop this happening.
  10. You can receive up to £4,250 in rent from a lodger without paying tax, and this allowance rises sharply from April 2016.
  11. If you put money into a savings account for your child, and the interest is more than £100, you will pay tax on that income yourself (unless you use a Junior ISA or Child Trust Fund).

Useful links:

Main pension advice page

Chartered Financial Planners. Regulated by the Financial Conduct Authority (FCA no. 603653).