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Cutting Tax Bills Means More Money For You
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Taxation is an unavoidable feature of modern working life. Granted, it is a contribution to the common good and does provide benefits such as infrastructure and an orderly environment without which life would be far less pleasant. However, you are only obliged to pay the minimum necessary – nothing compels an individual to contribute more than their fair share, as determined by the various tax laws. Cutting tax bills is legal and makes sense.

The reality is that many individuals don’t understand or properly use all the deductions they are allowed, with the result that they overpay on their tax bills. It is estimated that the average annual refund is over £300. This might not seem much, but as many have to pay in, it means that those due a refund would be owed considerably more. Just like any business, individuals should also structure their income for maximum tax-efficiency.

To help out, here are some common tax saving tips:

Share with Your Spouse.

This is particularly good if your spouse does not earn any income. By sharing your income the average tax rate can be reduced dramatically. This is only fair and not a form of cheating, so there is no need for ant guilt feelings. You are simply putting yourself in the same position as households where both spouses are on the same tax rate. You share a home and expenses so why not income?

Rent a Room.

If extra income is needed, renting a furnished room is free of tax up to an annual limit of £4,250 (in the 2012-2013 tax year). This works out to £354 per month, which can be a useful additional income. Take Advantage of All Allowable Deductions. This includes a vehicle used for work or the costs of cleaning a uniform. There are many possible costs which could be deductible if they are necessary to earning a living. A good approach is to research this aspect. A little time will be spent in the beginning, but the rules don’t change much and the lifetime tax savings possible make this effort very remunerative. If you have made any losses, be sure to offset these against income. But remember, rental losses from rental properties can only be offset against rental income, so be careful.

Make Sure Your Tax installments are not too high.

You’ll get the money back, but why pay extra at all? Make sure your tax code and tax installments are appropriate to your expected income in the current year. If your income has dropped for any reason, you can justify a reduction. Additional Pension Payments are Very Tax-Efficient. If you can see you will have a potential problem and have excess income, it makes sense to make the maximum pension contribution. This will make for a more comfortable retirement, while pension funds are well treated by the tax laws.

Individual Savings Accounts Offer Great Tax Breaks.

An ISA is a tax-efficient resting place for extra funds – much better than letting them idle away in a current account! The government wants to encourage savings, so this is a win-win – you gain and the country benefits. Nothing wrong with that, is there?

Keep Tax Implications in Mind.

For example, when buying a property, try to keep the price below the threshold for stamp duty. This can save thousands of pounds. Structuring a salary package for tax efficiency can also pay dividends. Remember to always consider the possible effect of any action on your tax situation. Cutting tax bills is usually an incremental process, with many small individual amounts adding up to substantial savings, although there may be more substantial once-off gains involved.

Tax savings tips do not help if they are not used!

Consult an Expert when Taking Important decisions. Don’t be too proud to consult an IFA or tax expert when necessary. Any fees is normally outweighed by the savings and may even be deductible, not to mention less time spent arguing with the authorities, an activity most find very stressful. Not everyone can be a tax expert – there is no shame in seeking advice from one when necessary. After all, businesses find it pays to employ expensive consultants to handle this side of their affairs. Also, a fee like this, if any, is usually a once-off expense, whereas the savings are likely to recur from year to year. This is most effective if an expert is consulted before a decision is made.

These tax saving tips are necessarily only a small selection of the multitude of ways it is possible for an individual taxpayer to reduce tax bills. Many have a love-hate relationship with the tax authorities. Keeping taxes low helps the advantages seem more worth the financial pain involved.

Remember, a pound of tax avoided is as good as a pound earned. Cutting tax bills legally can be a very rewarding exercise, and well worth the slight effort involved initially, for some very nice repeated gains.


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