Tax Saving Tips to help with Cost of Living Crisis
During this challenging economic time, it is worth highlighting the taxable allowances which are available to you.
We are seeing increases in everyday essentials such as food, energy and the price of fuel, and many families are struggling with the constant rise in the cost of living, which has resulted in an increased focus on expenditure and financial planning. Here, we provide you with a summary of the top tax saving tips, which could have a big impact on your tax bill.
Personal pension contributions attract income tax relief, so it is important all of these payments are recorded. The gross value of the personal pension contributions made can extend an individual’s basic rate band. Furthermore, the contributions made will reduce assessable income for determining if any personal allowance needs to be abated or if any child benefit payments need to be repaid.
It is worth also ensuring all gift aid payments are recorded, as the gross value of the payments made will attract the same tax reliefs as described for personal pensions.
So if in the summer you are making trips to attractions such as the zoo or your local National Trust property it is worth recording these payments as they may generate tax relief.
Rent a Room
Did you know you can automatically receive up to £7,500 tax free from renting a furnished room/s in your house to a lodger. This limit is halved if you share your house with a partner or someone else (£3,750 each).
If you earn more than the £7,500 from renting rooms out in your own home, tax will be due on either the excess over £7,500 or the difference between rent and rental costs.
Property and Trading Allowance
An individual can earn up to £1,000 a year tax free from self-employed activity and from rental income by using their trader and property allowances.
For instance during the summer you may wish to rent your driveway to tourists which is property income. The first £1,000 received will be free of income tax (this can be £2,000 if the property is owned jointly between two individuals).
Any payments in excess of this limit will be taxable and the taxpayer can decide to deduct the £1,000 limit or the actual expenses incurred when calculating their taxable profits.
Transferring Assets to your Spouse
It might be worthwhile considering transferring assets to your spouse if they pay tax at a lower rate than you on the income generated from these assets. This will be useful if the spouse has some of their tax allowances available. The transfers can be made to a spouse free of capital gains tax (and would also not be a gift for inheritance tax purposes).
Using the Capital Gains Tax Annual Exemption
Each individual is entitled to a capital gains tax annual exemption of £12,300 per tax year. Therefore, if you are looking to sell some assets and the difference between the sale proceeds and the original cost for all assets sold in a tax year is less than £12,300 no tax will be due.
It may be worth spreading any gains across different tax years to maximise the annual allowances available to you. Also by transferring an asset to a spouse prior to disposal it will allow an additional annual exemption to become available as two people are making the disposal not just one.
If you are a basic rate taxpayer and your spouse earns income below their personal allowance there is also the possibility to transfer a proportion of their unused personal allowance to you. This can lead to an income tax saving of up to £251.
For more information on this, please contact Joe Wilson on 023 8046 1237.