1. Use Isas
Investing in an Isa doesn’t reduce tax bills immediately but it will in the future. There are said to be thousands of people with £1m or more in their Isas whose money has grown tax-free and who will not have to pay income tax on their savings when they withdraw them.
2. Remember Junior Isas
Historically, many people have used their own Isa to save for children, but with the introduction of the Junior Isa adults do not have to eat into their own tax-free allowance. Junior Isas enjoy the same tax-free benefits as standard Isas and have an annual subscription limit of £3,600.
3. Pay into a pension
You can contribute £50,000 a year into a pension and enjoy a tax uplift equivalent to your marginal tax rate. This means every £1 saved into a pension by a 40pc taxpayer only costs them 60p. In times where the Government seems to be cutting back more and more, taking advantage of these opportunities should be considered to help you boost your retirement fund.
4. Sacrifice some salary
You can get even more value out of a pension by choosing to make contributions by “salary sacrifice”. In this way, your salary up to the £50,000 annual pension limit can be contributed directly to your pension. While pension contributions already attract income tax relief, salary sacrifice has the added benefit of saving you – and your employer – National Insurance, because your contributions will be added gross of this tax.
5. Consider a child Sipp
Child Sipps have the same annual contribution limit as a Junior Isa, £3,600. Assuming the same fund size in a child Sipp by age 18 as in the junior Isa example above (£92,000) and by paying an additional £50 per month into this pension from age 18
6. Capital gains
Most people in the UK are liable to pay capital gains tax. However, most also qualify for an exemption on a certain amount each year – currently £10,600.
A strategy known as “bed-and-breakfasting”, in which a person would sell shares equivalent to the value of their CGT allowance to make use of the tax relief and buy them back the next day, has been outlawed. But a similar outcome can be achieved if you are married or in a civil partnership by “bed-and-spousing”; selling your shares and using your CGT allowance to nullify the gain before your partner buys the same shares/assets back.
Transfers of assets between spouses are tax-free and so making a transfer can also be used if one partner has gains in excess of their exemption and the other has spare capacity in theirs.