Some of your personal expenses are easier to track then others are. When you reach into your pocket, pulling out money for a purchase, there’s no doubt about how much cash you’ve laid out. Similarly, many monthly outgoings remain unchanged from one payment to the next, enabling you to anticipate each expense and account for the repeating spending obligation. Taxes, on the other hand, aren’t always as easy to keep tabs on, because they’re not paid in a traditional exchange of cash and a monthly bill doesn’t show up at your doorstep.
Another tax year has come and gone, so it’s a good time to take stock, preparing for the next round of taxes. April 6th marks a new start, so why not focus on saving money on your taxes this year? You may not be able to take advantage of every single saving strategy, but even minor moves can keep more of your hard earned money in your bank account, where it belongs.
Rent a Room for Relief
Have you ever considered becoming a landlord? You may be able to start small, earning some extra money letting a furnished room in your house. Tax law allows you to bring in as much as £7,500 letting a room, without taking on an additional tax burden. In fact, if your total payments from guests doesn’t exceed the threshold, it may not even be necessary for you to include the income on your tax return.
When fast cash is all you need, money is available online, without undergoing a deep background credit check. But if you’re looking for ongoing tax relief, a rent a room scheme provides steady payments you can count on throughout the year.
Regularly Contribute to Your Pension
Pension rules periodically change, so it’s important to proceed with the most reliable information available, reflecting up-to-date regulations governing contributions. Under the current guidelines, you may be able to stash up to £40,000 in a year, earning a top up from the taxman equaling 25p for every £1 you’re able to put away in a pension. If you’re a taxpayer subject to one of the higher rates, it may be possible for you to claim back additional relief worth another 25p on your tax return.
Plan for Your Heirs
You’d naturally think there’s enough on your plate managing your taxes whilst living, but it’s also important to plot a prudent course for heirs, after you’re gone. Taxpayers with assets worth more than £325,000 at the time of death must recognize their heirs are subject to a stiff tax burden, applied to money above and beyond the allowable threshold.
The inheritance tax (IHT) rate is now set at 40 per cent, but there are steps you can take to ease the burden for family members and other beneficiaries. Tax law allows you to give away up to £3,000 each year, exempt from IHT. Your giving habits whilst living will come under scrutiny after you’re gone, but you’re even allowed to catch up to certain extent. If you didn’t give a gift worth £3,000 last year, you may be able to boost this year’s amount to £6,000 without suffering penalties from the taxman.
In addition to gifts to your spouse or civil partner, given to avoid IHT, weddings present additional opportunities to give generously during your lifetime. The taxman allows wedding gifts to children valued at up to £5,000, and you can also gift up to £2,500 to grandchildren and great-grandchildren, commemorating their nuptials, without paying IHT.
Put By Money For Your Children
It’s harder than ever to get on the property ladder, so your children are sure to appreciate a leg up. Contributions to ‘help to buy’ ISAs are allowed up to £200 per month. And you can also help your children by establishing a tax-free Junior ISA. It is possible to contribute up to £4,260 in a single tax year, which is held until your child reaches age 18.
Sorting out tax matters isn’t as straightforward as some other aspects of your financial life. There’s no substitute for professional tax advice, so don’t make moves without understanding all the rules applicable to your finances. Some of these tips may help you plan for the future and save on your taxes this year.