Top tips for keeping the taxman out of your pocket

Philip Salter
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BASED upon the latest government forecasts, the Adam Smith Institute is predicting Tax Freedom Day – the notional day when you stop working for the taxman and start filling your own coffers – will fall on Monday, making it three days later than last year. Fidelity International has translated this into the fact that basic rate taxpayers have to work every day until just past one o’clock, and higher rate taxpayers must work until 1.45pm, before they are working for themselves. Research commissioned by reveals that Britons are set to waste £13.5bn in unnecessary tax payments this year, which works out at £440 per individual. As Karen Barrett, chief executive of says: “We are living in tough times and many people are feeling a definite squeeze on their finances – so why not take tax action now and pledge to move your personal Tax Freedom Day earlier in the year to reclaim and keep money that is rightfully yours.”

Most experts advise that the first port of call for tax efficiency is for savers to make use of their Isa allowance. If you don’t use it, you will lose it, and each year you can take out the full limit. Michelle Slade of Moneyfacts says: “The current annual limit that savers can invest tax-free is £10,680 (£5,340 in a cash Isa). The annual Isa limit will now increase each year in line with inflation, so savers could soon build up a large tax-free nest egg.” Adrian Lowcock of Bestinvest likes them because of their flexibility – Isas can cover a variety of assets with differing risk profiles.

The NS&I Index-Linked Certificate has recently been reintroduced. Lowcock says this is “a very attractive product.” If you are able to lock away some cash for five years, these tax-free certificates are the safest way to beat inflation. The maximum investment is £15,000 per issue. Hargreaves Lansdown has worked out that March’s 5.3 per cent RPI works out at gross equivalent interest rates of 5.8 per cent for non-taxpayers, 7.25 per cent for basic rate taxpayers, 9.67 per cent for higher rate taxpayers and 11.6 per cent for additional rate taxpayers. That they are still linked to RPI, not CPI, makes them highly compelling. Andrew Hagger of suggests you snap them up quickly, as they may not be around for long.

Adrian Lowcock of Bestinvest, which has just launched its Bestinvest SIPP, thinks that pensions are the one area that most people don’t pay enough attention to. All recognised pension schemes grow free from capital gains and further income tax liability. Contributions may be deducted up to your highest marginal tax rate, and at least on the basic tax rate: all taxpayers contributing £25,000 would get £6,250 relief, making their total contribution £31,250, while 40 and 50 per cent taxpayers may respectively claim up to £6,250 and £9,375 additional relief.

Simon Leney, partner at Cripps Harries Hall says: “If married or in a civil partnership, ensure that as far as possible income is equalised between each of you.” On this, Lowcock advises couples use both their capital gains tax (CGT) allowances. Leney also suggests: “If you have expectations of an inheritance and you have children under eighteen, make sure your parent’s will is drawn so that the capital is not payable to you as of right – using a trust structure. Then on inheritance there is an option to make use of the children’s annual income tax allowances.” Leney also suggests people consider how to defer income. For example, by taking “share options rather than cash, so as to be able to even out taxable income across the years.” Lowcock also suggests higher rate taxpayers look into investing in venture capital trusts (VCT) and the enterprise investment scheme (EIS).

You can always leave the country. Ignoring the famous tax havens, according to the Organisation for Economic Cooperation and Development (OECD) the people of Mexico, Turkey and South Korea all pay much less tax than people in the UK. As Tom Clougherty, executive director of the Adam Smith Institute says: “If people understood how much tax they were paying, it would be much harder for governments to rip them off. But tax competition is vital too. In a globalised economy, governments need to know that people can take their money and their business elsewhere if taxes get too high.” Tax needn’t be taxing, but it is. Until the UK government gets its act together you will have to learn the rules – or pay someone who knows them – to limit the damage.