We all moan about our tax bills, yet willingly hand over thousands more than we need to each year. According to a new report from AXA, the average British household will pay £603,697 tax in their lifetime.
Things don’t get much better when we die, either. Figures from IFA Promotion reveal that UK adults will collectively waste £1.6bn through poor inheritance tax planning. The Journal’s Jane Hall suggests a few ways to keep the tax bills down in 2006.
Check your tax code: You could be paying over the odds.
Isas: Use up your annual allowance. A collective £127m in tax could be avoided by sheltering investments in this way.
R85 forms: These inform the Inland Revenue of an individual’s non-taxpayer status, enabling interest to be paid tax-free into savings accounts and saving non-taxpayers an average of £53 a year.
Employee share schemes: There are an estimated 865,000 staff currently in a savings-related share option scheme, and if each one invested just half of the annual £1,500 investment permitted under the Government’s 2001 Share Incentive Plan (said to be “one of the most tax advantaged all-employee share schemes ever to be launched in the UK”), they could save a collective £285m in tax.
Stamp duty: You can save save thousands if you negotiate with the seller to drop the house price just below the relevant stamp duty threshold (ie, £250,000 and £500,000).
Inheritance tax: It’s currently levied at 40% on everything over £275,000, from savings and investments to your home and all your possessions. There are a number of tax-efficient ways to reduce the bill for your beneficiaries, one of the most obvious being to make tax-free gifts now to intended beneficiaries (and then live for another seven years). IHT-avoidance schemes can be complex, so it makes sense to seek financial advice.
Tax allowances: Maximise your personal tax allowances, by, for instance, transferring assets between spouses.
Charity: Make sure any donations qualify for tax relief by using a tax-efficient means, such as a payroll scheme or Gift Aid.
Pensions: The tax breaks afforded by pensions are well known, and certain elements of the rule changes, which take effect on 6 April, will create even more generous tax breaks for some.