The tax year is coming to a close in just over a month yet there are still some last minute actions you can take to ensure you are reducing your tax bill as much as possible for the tax year ended 5 April 2015, especially if you are a higher rate or top rate tax payer.
It does require you to pull your finger out pretty quickly though – so don’t delay!
Higher rate tax payers doubled in ten years
Let’s first recap the current state of the economy in the UK; rising debt, insufficient growth and low interest rates, coupled with spending cuts and rising tax rates, that are only adding to the issue. It’s pretty doom and gloom still despite the optimism that is projected in the media.
The number of people now paying higher rate tax is double that of ten years ago and this incline is predicted to continue into 2015 with wages rising quicker than the bracket for higher rate tax, which currently stands at £41,865 (14/15).
“Don’t let the tax tail waive the investment dog”
The government are however, continually introducing schemes which enable a tax payer to save tax. whilst promoting investment into the UK economy.
Saving tax is of course a key aim for most tax payers, especially those falling into higher rate.
It’s important not to get carried away though – many investors can let tax have a disproportionate influence when making decisions around investments. For example, keeping hold of a poor, declining investment solely due to tax benefits, is not sensible in the short or long term.
3 simple ideas to still save tax in 2014/2015
- Utilise each spouse’s personal allowance and tax bands – simply, this means, if one spouse or civil partner falls into higher rate tax yet the other is earning a smaller income comfortably paying basic rate tax or no tax at all then consider ways which income can be allocated to the lower earning spouse. Transferring income yielding savings and investments into their name is an example. The personal allowance for 14/15 is £10,000 and basic rate tax is paid at 20% on earnings up to £31,865.
- Ensure you and your spouse use your ISA allowances – free from Capital Gains Tax (CGT) and Income Tax, it is worth the majority of investors utilising the full annual ISA allowance, which this year is £15,000. If investments are held in a savings account, an ISA is likely to give a better deal right now anyway, with abysmally low rates of interest on regular savings. ISA savings are typically fairly flexible too so it covers off investment planning, tax planning and just personal finance planning too.
- Maximising your pension contributions – pensions continue to be the number one investment vehicle with tax benefits. In short, anyone under age 75 can contribute and get tax relief on pension payments, even children and non-tax payers. As a higher rate tax payer, money that would be spent on paying higher rate tax can instead be going towards the pension pot, especially appropriate when taxpayers are on the verge of basic and higher rate tax brackets.
Read more on claiming tax relief on pension contributions.
There are many more advanced tax planning methods that are bespoke to personal circumstances.