What is Income Tax?
Income Tax is a tax that you pay on any income received from working, retirement (pensions), savings and investments.
Here we share with you 5 top tips on how to save income tax.
1. Tax-free savings
Putting money into an Individual Savings Accounts, an ISA is a way of putting money away for the future within a tax-free wrapper.
Each tax year, starting on 6 April, you receive a new ISA allowance. For the tax year 2017/18, the ISA allowance is £20,000.
There is a variety of ISA's: from cash to stocks and shares and junior ISAs (where there is an annual allowance of £4,128)
You can also save into an Innovative Finance ISA or Lifetime ISA (with an annual allowance of £4,000).
You can even save for a deposit for your own home using a Help to Buy ISA. The Government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.
2. Pension Funding
Contributions paid into an employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged.
For every £1 that you pay into a personal pension, the government will contribute another 25p. What's more, if you pay tax above the basic rate, you might be entitled to claim additional tax relief via your tax code or self-assessment.
3. Check your tax code
Check your tax code each year. If you're on the wrong code, you may be paying too little or worse too much tax.
4. Low taxable income, use your £5,000 savings allowance
If the income from your job or pension is below the £11,500 personal allowance, but you earn income through interest on savings, you can qualify for the savings allowance. Interest of up to £5,000 is paid free of income tax in addition to your personal allowance, meaning that you could earn as much as £16,500 before paying tax.
5. Marriage Allowance
From 6 April 2017, married couples and civil partners can transfer £1,150 of their personal allowance from the lower-earning partner to the higher earner, saving up to £230 in tax.
The Marriage Allowance is only available if the higher earner is a 20% taxpayer. No transfer is possible if they are a 40% taxpayer.
Navigating your way around the complexity of UK tax is challenging. For more information regarding any of our tips, and for other ways to mitigate your tax liability, contact us before making any decision.