Tax is not just a pain it is also complex. Information is often misleading and making sense of it is becoming an art form. Moreover, if you are unaware of how tax works it is easy to get caught out making that pay rise or bonus worthless.
With this in mind, I have put together a brief guide on some aspects of tax that can help you minimise liabilities.
If you are a parent there are some aspects of child benefit you need to know.
In April 2018 UK personal tax allowance rises to 11,850 from 11,500. If you are married or civil partnered the lowest paid partner can transfer £1,150 of their tax allowance to your partner providing they are currently at the base rate of tax. Note, this no longer applies if one of you is a higher rate taxpayer.
If you receive share dividend income you may be able to use the transfer of personal allowance to minimise your tax liabilities further. Currently, there is a dividend allowance of up to £5,000 which reduces to £2,000 in April. Any dividends beyond this are taxable if you’re total income is higher than your personal allowance. It could be that with share dividend income the best move will be for your partner to transfer personal allowance. It all depends on who earns the most when everything is factored in.
Tax Relief on Pensions
It is estimated that around £300 million a year of pension tax relief isn’t claimed. This is due to tax relief only applying to the basic rate of tax on personal pensions. If you’re a higher rate taxpayer and you’re not claiming tax relief you should be. Fill out a tax return to claim what is rightfully yours.
Some employers automatically take tax relief into account. It is worth clarifying this and taking action if you need to.
It can have quite dire consequences as it can push you over the £100,000 bracket and tax you at a higher rate.
You can also get tax relief on gift aid donations if you pay a higher rate of tax.
Beware the Child Benefit Trap
If you are a parent there are some aspects of child benefit you need to know. If one of you earns over £50,000 you will lose 1 percent of the benefit for every £100 earned above this £50k threshold. Once you hit £60k it is gone.
However, if you earn £49,000 and so does your partner, so a combined income of £98,000 you get to keep every penny of your child benefit. Scenarios, where a couple pays 73% of their income on tax (National Insurance, Child Benefit loss, and Income tax), are not uncommon.
Childcare – Vouchers or Tax-Free Credit
Currently, a voucher system operates for paid childcare. After April 2018, however, this will no longer be available and the tax-free system will apply. If you are currently on the voucher scheme you will have to decide whether to remain in the voucher scheme or switch to the tax-free system.
Voucher schemes allow you to sacrifice some of your salary for vouchers. You can sacrifice up to £55 per week if you’re a basic rate taxpayer, £28 per week if you’re in the higher tax bracket. This gives you a tax saving of £930 and £630 respectively.
To qualify for the new tax-free system you must earn over £120 per week and earn no more than £100,000 a year.
Under the scheme, you, together with others such as grandparents can put up to £8,000 into an account . The government will put up to 25% of the total amount tax-free. So £2,000 maximum.
If your child is disabled you can only put £4,000 into an account, but claim other benefits on top of it.
Obviously, a calculator is needed to work out which scheme is better if you currently have the voucher scheme.
My award winning financial planning advice can help you reduce your tax liabilities. UK tax laws are complicated and it is easy to make mistakes. Click here and complete the Call Back Form and we can discuss your circumstances and find ways to keep your money in your bank account.
Source: Daily Mail