The Top Six Ways To Pay Less Tax Today!

One question that has proved ever more popular in today's debt ridden society is how can we legally avoid paying tax? Of course, tax is inevitably unavoidable, as Benjamin Franklin once said, "In this world nothing can be said to be certain, except death and taxes". However, there are ways that you can minimise the amount of money you are taxed, by the book. Obviously taking advice from a professional financial advisor is paramount here but to give you some ideas here are 6 easy steps to guide you on your way.

1. Make sure your affairs are in order in case of death: A will should ensure an orderly assignment of your assets. Trusts can help reduce your loved ones exposure to Inheritance Tax (IHT). All this comes from getting good life insurance advice and financial advice before you die, as it is difficult to get it afterwards. The IHT limit is currently £325,000 in the UK, any excess amount over this amount is liable to 40% charge, and you can leave your assets to anyone in your will and won't be taxed for a penny under the threshold.

2. Open an ISA: If you are a taxpayer, you will generally pay tax on any interest you receive on your savings. This tax is ordinarily deducted at source so you receive your interest 'net' of tax. An Individual Savings Account (ISA) allows you to save up to a certain amount every year (£5,100 in tax year 2010/11 rising to £5,340 in tax year 2011/12) without having any tax deducted.

3. Tax relief on business mileage using your own car: It's not commonly known that use of your personal vehicle for work can be claimed as tax expenses for business if your employer does not fully compensate you under HMRC guidelines. This will no doubt mostly apply to couriers and people who have to travel to different business sites regularly by car, van or motorbike, so look to see if you qualify for tax allowances for these journeys. First point of call for the right forms and to check if you qualify, HMRC.

The amount you can claim on depend on the type of vehicle you use, the mileage you do and the amount in payments you currently receive from your employment for the mileage you do. Mileage rates for vehicles are shown on the HMRC website. Multiply this by the mileage you cover for your job (not including to and from your place of work and home) minus the amount of compensation you already received and what is left is the amount you can claim on. As with all these thing there are numerous variables to take into account so before you jump for joy you will need to check with HMRC against your own personal set of circumstances.

4. Use your Capital Gains Tax : Gains Tax (CGT) is charged on the profits that you make when you sell or otherwise dispose of an asset. For example, if you bought 10,000 shares for £1 each in 1990 and sold them at £5 each in 2011, you would have made a profit of £40,000.

So how do we minimise our CGT exposure. Firstly there is a CGT threshold and that stand this year at just over £10k. So if your profits on capital sales during the year are below £10k then you will not have to pay CGT. So keep your profits on assets sales below this each year by spreading sales over a longer period of time. It is also handy to know that your spouse will have the same CGT threshold!

5. Give to charity: Charitable donations attract preferential tax treatment in the UK. If you are a basic rate taxpayer you can use the 'gift aid' scheme whereby charities receive your donation - which is money you've already paid tax on - and reclaim basic rate tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - the amount before basic rate tax was deducted.

If you fall into the high bands of tax, i.e. 40% or 50%, it's possible to claim back the difference with the basic rate of tax (20% at the moment in the UK) on the amount of the donation.

6. Rent out property? Expenses can be claimed: There are a number of expense landlords can claim against tax when looking at their property. If you have a residential let then it would more than likely be classified as a property business. A property business can make a number of expense claims for such things as repairs and maintenance of the property, cost associated with marketing and letting the property, interest on any loans associated with the property, Council Tax or other utility bills that are paid for by the landlord and any insurance costs. Claiming for these expense will reduce your tax liability.

Great, more for you and less for Exchequer. Now that sounds like music to me!


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