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Take a tax break!
Savvy savings checklist

Tax code

Make sure you have been paying the correct amount of tax over the past year. Mistakes do happen and can go unspotted. If you are over 65, you should check that you are getting the correct personal allowance. The income allowance for the 2007-08 tax year is £5,225 to age 64, £7,550 for people aged 65-74 and £7,690 for people aged 75 and over.

This extra allowance can be reduced if a pensioner’s earnings are relatively high. The personal allowance falls by £1 for every £2 earned above £20,900, although the personal allowance cannot be cut below the normal level of £5,225.

If you are married and one of you was born before 1935, you can also claim an additional allowance called the married couple’s allowance. This allowance is restricted to give relief at a fixed rate of 10 per cent. This means that, unlike the personal allowance, the married couple’s allowance is not income you can receive without having to pay tax. Instead, it reduces your tax bill by 10 per cent of the amount of the allowance you are entitled to.

Savings

If your spouse is a non-taxpayer, consider transferring any spare savings into their name. This makes use of their personal allowance to avoid being taxed on the interest earned.

Make sure that you are protecting as much of your savings and investments as possible from income tax and capital gains tax. You can shelter £3,000 of your bank or building society savings in a mini cash ISA in any one tax year, or invest £7,000 of equities in a maxi ISA. Alternatively, invest £3,000 in a mini cash ISA and £4,000 in a stocks and shares mini. You cannot open a maxi and a mini in the same tax year.

Pensioners with an ordinary savings account should fill in form R85 to receive bank and building society interest without tax being deducted.

If you are a higher-rate taxpayer, it is also worth looking at tax-free savings certificates from National Savings & Investments.

Inheritance tax

Consider giving away assets where possible, but only those that you are quite sure you will not need later on. Gifts made at least seven years before you die are not subject to IHT, although HM Revenue & Customs are looking very closely at this area. You can also give away money that may be described as ‘excess income’ without incurring an IHT liability. In addition, £3,000 may be given away tax-free each tax year.

Charities

While doing your tax housekeeping, remember that any donations to charity can attract tax relief. Giving to charity through Gift Aid allows the charity to reclaim tax at your highest rate.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. Any references made to the Pre-Budget Report may be subject to the Finance Bill becoming law.

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