‘Tax freedom day’ is getting later and later. The Adam Smith Institute reckons that the notional day when you stopped working for the taxman fell last Monday. So it’s more vital than ever for investors to bring down their tax bills. Here are three easy ways to do so.
Use an Isa
Individual savings accounts can shelter up to £10,340 from the taxman per person. That means dividends are received free of income tax beyond the first 10% (which cannot be reclaimed regardless), while capital gains are entirely tax-free. This is a ‘use it or lose it’ allowance, so don’t forget to take advantage each year. For more, see our video https://www.moneyweek.com/isa-video.
Keep a record of losses
If you sell shares at a loss, you should note it. Although you can’t make a claim there and then, the amount can be used to reduce any tax on your gains at a later date. For example, say you lost £5,000 selling shares last year. This year you make £15,600. You use your capital gains tax (CGT) allowance of £10,600, leaving you with a £5,000 taxable gain. But you can offset your £5,000 loss from last year against this, leaving you with nothing to pay.
Split your assets
It makes sense for a husband and wife to split their assets, especially if they’re in different tax bands: income-producing assets should be held in the name of the spouse in the lowest band. You can also double up on tax allowances (ie, CGT exemption) mentioned above.