Top 10 Tax Saving Tips For Individuals
- Rent a room out in your house. You can receive up to £4,250 per year from a tenant living in your home without having to pay any tax or declare it on your tax return.
- Arrange your borrowing in a tax efficient manner. For example if you have two mortgages, one on your own home, another on a buy to let property, the mortgage on the buy to let will be tax deductible, whereas the mortgage on your home is typically not. It may therefore be beneficial to maximise your borrowing against the buy to let property and pay off your personal mortgage. Ensure the differential in interest rates is not sufficient to negate any tax saving.
- Claim 40p per mile (for the first 10,000 miles) for any business mileage you do in your private car. If you are VAT registered, then HMRC accept that around 2p of this is VAT on the fuel. Reclaim it.
- Claim tax credits you are entitled to. HMRC like making life difficult for people. Often, if you are working for a relatively low wage or your self employment is not that profitable (say £10k per year), you will pay tax on your earnings, but then you may be entitled to tax credits. Sadly these are never simply netted off. If you don't apply for the tax credits, you won't get them. Make sure you ask the question.
- Consider transferring income-generating assets into your spouse's sole name if their earnings are lower than yours. This could be savings accounts, shares receiving dividends, or buy to let properties. This will help ensure the income is taxed at the lowest rate possible.
- If you have savings, put them in an ISA. If you don't like risks, cash ISAs are as safe as money in the bank, but you won't be taxed on the interest. If you're more adventurous, why not use the current low FTSE value to go for a stocks and shares ISA (warning, shares can go down as well as up!)
- Consider offsetting your savings against the mortgage on your home. Generally savings interest will be taxable, whereas mortgage interest on your home will not be tax deductible. Offsetting taxable income against non-deductible expenses may save you some tax.
- Claim gift aid. When making a donation, this enables the charity to reclaim basic rate tax on your donation. If you are a higher rate taxpayer, ensure you remember to enter these donations in your personal tax return, as they will extend your basic rate band, saving you tax.
- If you have several capital items which you are considering disposing of, dispose of them in separate years to maximise the capital gains exemptions. Capital gains have been subject to a great deal of change over recent government budgets. So check the changes in tax rules before making any major decisions. Here again, consider sharing ownership with your spouse as any disposals will attract two annual exemptions.
- Consider making gifts to your children/grandchildren to minimise inheritance tax. Gifts out of income of up to £250 per donee, plus up to £3,000 per year can be given with no IHT consequences.
