The dawn of a new tax year is upon us, which is a perfect opportunity to take a look at our personal finances, assess our situation and look for ways to improve our position. However, the difference this year is that it brings with it soaring energy prices and a rise in inflation. Alongside the cost-of-living crisis, we’ve also had to deal with stock market volatility brought on by the pandemic and the conflict in Ukraine. It is understandable then, that this can make us uncertain about what to do with our money, but there are some simple steps we can take to boost our take-home earnings and ensure we are utilising all the tax allowances offered by the government.

There are many ways to reduce your tax bill legally, whether you’re an employee or self-employed, a landlord, investor or pensioner. Here are just a few tricks to put more pounds into your pockets:

Save tax on your earnings and take advantage of employee tax benefits

• Check your tax code. This is on your payslip and will tell your employer or pension provider how much tax to take off you. It is your responsibility to check that you are on the right code and you can do so by using free online tools. Furthermore, this can be back-dated up to four years, so if you have been overpaying, you could be in for a tidy rebate.
• Reclaim overpaid taxes. If you are a non-taxpayer or stopped working part-way through a year, you may have overpaid your taxes, so give HMRC a call to reclaim them.
• Claim tax credits. If you are on a low income, disabled or look after children, then you could be eligible for working tax credits or child tax credits (as long as you are not already receiving Universal Credit).
• Claim tax-free childcare. If you are a working parent with a child under 11 and you earn less than £100k, you could claim back 25% of your childcare costs, up to a maximum of £2k per year.
• Benefit from marriage allowance. If you’re a non-taxpayer and married or in a civil partnership with a basic rate taxpayer, then you could give 10% of your allowance to the tax-payer, saving them £252. This can also be back-dated up to four years.
• Meet the tax return deadline. If you’re one of the 12 million people who files a self-assessment tax return, then ensure you do not miss the deadline of 31^st October 2022 for paper submissions or 31^st January 2023 for online, or you will pay £100 fine.
• Get a season ticket loan. You may be able to take advantage of a tax-free loan from your employer to buy your season ticket, which could save you hundreds.
• Pay into a pension scheme. You can make contributions to your employer’s pension scheme from your gross pay. The government will then top those up with 20% tax relief, essentially giving you a free bonus for saving towards retirement.

Self-employed?

• Tax-deductible expenses. Deduct business operating costs from your profits to reduce your tax bill, such as fuel, phone or home office running costs. You can even expense a company car and mileage costs.
• Offset annual losses. If you made a loss one year, then you can carry it forward and offset it with any profits in a more successful year, reducing your tax bill.

Cut taxes on savings

• Personal savings allowance. As a basic rate taxpayer, you can earn up to £1,000 per year in interest on savings before having to pay any tax. This drops to £500 for a higher rate taxpayer and zero for an additional rate taxpayer.
• Starter rate for savings. However, if you earn less than £12,570 but still get interest from savings, you will qualify for ‘starter savings allowance’, meaning the first £5k of savings income is tax-free. This is in addition to the £1k mentioned above, which effectively means you could earn £18,570 before paying tax.
• ISA’s. Maximise your £20k annual allowance into tax-free ISA’s, whether that’s cash, stocks and shares or innovative finance ISA’s. If you are between 18 and 39, then you could put up to £4k a year into a Lifetime ISA and the government will give you a 25% bonus, ie another £1k per year.

Investments

• Dividend allowance. You can earn up to £2k per year in dividend income without paying any taxes.
• Capital Gains Tax (CGT) allowance. If you sell certain investments such as art, antiques, shares or a second home, you have to pay CGT. However, capital gains (profits) up to £12,300 in 2022-23 are tax-free, and if jointly owned by a married couple, that rises to £24,600. There are then different levels of tax depending on what you sell and which tax bracket you are in.
• Transfer assets to spouse. There are no tax charges for transferring assets between spouses or civil partners, so it might be worth transferring assets to them if they are in a lower tax bracket than you.
• Gift to your child. You can avoid paying taxes when gifting to your child, by putting money into a Junior ISA for them, up to £9k in 2022-23.
• Switch from income-generating to capital-appreciating. If you are a higher or additional rate taxpayer and have investments outside of an ISA or pension which are generating substantial income, then you may be better off switching to investments targeting capital growth instead. For a higher rate taxpayer, this would reduce your tax bill from 33.75% for dividend income to 20% CGT.
• Invest in Enterprise Investment Schemes (EIS) or Venture Capital Trusts (VCT). The government rewards people for investing into start-up and early-stage companies. Both of these attract a 30% tax relief on your income tax bill, on the value of your investment (up to £1m for EIS and £200k for VCT).
• Use share incentive schemes from your employer. Some employers offer share options in their company at preferential rates, and from your gross pay, meaning you can buy cheap shares and not pay income tax or national insurance. Please note however, you may still have to pay CGT when you finally sell your shares.

Property income tax

• Rent-a-room relief. You can receive up to £7,500 per year in rent from a lodger tax-free, as long as the room is furnished and you also live there. However, if the property is owned by two or more people, then the allowance is split accordingly, to still total £7,500.
• Landlord’s expenses. As a landlord, you can deduct a whole host of expenses from your income, such as gardeners, cleaners, letting agent fees, service charges, insurance etc. You can also claim tax relief on replacing domestic items in a furnished flat, such as mattresses, sofas, curtains, fridges, etc.
• Tax relief on buy-to-let (BTL) mortgages. You can claim 20% tax credit on your interest payments on a BTL mortgage.
• Reduce CGT on selling rental property. As mentioned previously, when selling an investment property, you will be liable to pay any tax on your profit. However, if the property was your main home at some stage in the past, then you could claim tax relief on the last nine months of ownership.

Tax savings for those in retirement

• National insurance contributions (NIC). If you carry on working past the age of 66, you will no longer have to pay NIC.
• Cut down your Inheritance Tax (IHT) bill. Gifts from your estate won’t count towards IHT, as long as you outlive them for seven years, which could significantly reduce a future tax bill. You can also give away up to £3k per year without any tax bill.

Save tax by donating to charity

• Charity donations. These are tax-free and either you or the charity can claim back tax via Gift Aid. Donating through gift aid means that charities can claim an extra 25p for every £1 they receive. If you are a higher rate taxpayer, you can also benefit by obtaining relief for the donation on your tax return, effectively extending your basic rate tax band by the gross amount of your donation. For additional rate taxpayers, not only could it extend your basic rate band, it could also restore your tax-free personal allowance, giving you an effective rate of tax relief of 60%.

Disclaimer: Please be advised that all of these allowances and reliefs are correct at the time of writing and may not be applicable to everyone. This is just an overview of some of the solutions available. As always, we would urge you to seek appropriate advice before making any changes to your finances, as people’s circumstances are all different and therefore, what works for one may not work for another. Our team has extensive knowledge in these matters, so please do get in touch for further information on tax planning and how to manage your wealth efficiently.