Published: 11 February 2019
With the end of the tax year approaching on 5 April, now is a good time to review your tax position, think ahead and check you’re making the most of your available allowances and tax reliefs.
For millions of taxpayers - around 5.5 million according to HMRC figures released on 2 January 2019 1 - the start of this year will have been a time for getting their 2017/18 financial affairs in order ahead of the 31 January tax self-assessment deadline.
In the rush to avoid late filing fines it can be easy to overlook making the most of your reliefs and allowances for the current tax year. But it doesn’t need to be a painful process and the potential rewards for giving your tax position a quick once-over can be very worthwhile.
Here we outline nine ways you may be able to save on tax, making the best of what the taxman has to offer. For more on each of the first three, read Taking action on tax: A practical guide.
Tax relief on member pension contributions is paid at your marginal rate, meaning basic rate taxpayers get 20% relief, higher rate taxpayers 40% and additional rate taxpayers 45%. You can’t get more relief than you would be due tax at the appropriate level.
An Annual Allowance and Lifetime Allowance apply to pension tax relief. You can find details of these, plus information about how your pension contributions can potentially help you make savings elsewhere in your financial life in our Getting the most from your pension savings guide.
Income tax rates are different in Scotland but the same basic principles apply.
You can save or invest up to £20,000 into an ISA for the 2018/19 tax year, sheltering any future growth or income on this money from income and capital gains tax.
This is the amount of profit you can make on sales of certain assets before being charged capital gains tax on it. That includes investments that aren’t sheltered in an ISA or pension.
The current allowance is £11,700 a year, above which gains on relevant investments are taxed at 10% (within the basic rate tax band) and 20% (on the amount above the basic rate). The rates for profits on residential property are 18% and 28% respectively. But if you’re selling your own home this would usually be exempt from CGT.
If you are married or in a civil partnership this lets you transfer up to 10% of your personal allowance (so currently £1,190) to your spouse or partner. This means that if they earn more than you, they can use it to reduce their tax bill.
However you can only pass it on if you don’t pay income tax or your income is below the personal allowance (currently, usually £11,850) and your partner is a basic rate taxpayer. So if you and/or your partner have income above a certain level, you won’t be able to claim it.
Gifts to charity or to community amateur sports clubs are tax free. Gift aid allows the charity to claim an extra 25p for every £1 you give. If you pay tax above the basic rate you can claim back the difference between this and the tax you paid through your self-assessment tax return.
If your employer or pension provider offers a payroll giving scheme, donations through wages or pensions are taken before tax is deducted (which means you can reduce your taxable income).
Holdings in VCTs qualify for income tax relief of 30% on investments of up to £200,000 each tax year, provided the investment is held for at least five years. Profits are also free from CGT.
VCT investments are at the higher risk end of the spectrum and are not suitable for everyone. You should seek professional advice if you are at all unsure whether VCTs are right for you. Alliance Trust Savings cannot give you advice.
If you are employed, a range of potential reliefs are available in relation to work.
These include some categories of travel expense (such as transport, accommodation and other costs when working away from home); the cost of cleaning, repairing or replacing uniforms necessary for your job; fees and subscriptions to certain professional bodies; and expenses incurred by working from home on a regular basis (unless it’s for your full-time employer).
If you are self-employed, a portion of household bills and computer costs are among the expenses that you can potentially take from your turnover in order to reduce your taxable income, provided they relate to your business.
Salary exchange (also known as salary sacrifice) allows employees to take reductions in salary in return for ‘non-cash’ benefits such as pensions and childcare (where the employer offers it).
If your employer offers this, by reducing your taxable income salary exchange can help keep you below certain tax thresholds.
All reliefs, allowances and tax benefits are subject to change in future, some being uprated regularly and others in line with Budget and Autumn Statement announcements.
Your eligibility for tax reliefs and allowances will of course depend on your individual and household circumstances. The most current information on tax allowances can be found online at gov.uk.
This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.
Laws and tax rules may change in the future without notice.
Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.
1 gov.uk, Self-Assessment deadline: less than one month to go, 2 January 2019
Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.