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52 Ways To Save Tax #21

pay less taxFor over 150 years, National Savings and Investments has looked after billions of pounds of savings and investments. Over 25 million people save with NS&I and one of the main reasons that the investments are so popular is that many of them offer tax advantages.

We look at the ways that you can save tax by investing with National Savings. Keep reading to learn more.

52 Ways to Save Tax – Part 21: Use National Savings and Investments

National Savings and Investments (NS&I) are backed by HM Treasury. This means that all the money you invest is always 100% secure. While NS&I is not a bank, they offer a range of savings and investment products, some of which offer excellent tax benefits.

Premium Bonds

If you have between £100 and £50,000 to invest then you could consider the tax advantages of Premium Bonds.

Premium Bonds don’t pay interest, but every month your Bonds are entered into a prize draw with the chance of winning a £1 million jackpot and lots of other tax-free prizes. Any prize that you win on your Premium Bonds is tax free, meaning you won’t pay any tax on the returns from your investment – if you win.

Anyone aged 16 or over can buy Bonds and parents, legal guardians and (great) grandparents can invest on behalf of their child or grandchild aged under 16.

Premium Bonds are great if you want to earn tax-free interest. Your money is completely secure and you can cash in your Bonds at any time without penalty. Bear in mind that the returns are determined by a prize draw and so you could invest for years without ever winning a prize.

ISA

A cash Individual Savings Account (ISA) lets you earn tax-free interest with no risk to your capital. NS&I offer a Direct ISA which can be managed online or by telephone and offers a tax-free savings rate.

You can invest up to your annual ISA limit (£15,240 in the tax year 2015/16) and you can access your money whenever you need to. All returns are free of income tax.

Index-Linked Certificates

From time to time, NS&I also offer tax-efficient Index-Linked Certificates. These products are sometimes generally available although often they will be restricted to savers who have existing Certificates that are maturing.

Index-Linked Certificates offer a return in line with inflation, using the Retail Prices Index (RPI). The Certificates often offer a return slightly above the rate of inflation.

The returns from Index-Linked Certificates are tax free, meaning that any interest and index-linking are exempt from UK income and Capital Gains Tax.

52 Ways To Save Tax #15

Pay less tax

Pay less tax by saving into a Junior ISA

There are lots of different ways to avoid paying tax on your savings. In the past we have looked at saving into an ISA and into your pension but if you have a child under the age of 18 you could also consider a Junior ISA.

Junior ISAs are a form of long-term savings account designed to help you to build up a lump sum for your child when they reach the age of 18. Keep reading to find out more about how you could pay less tax with a Junior ISA.

52 Ways to Save Tax – Part 15 : Save into a Junior ISA

You can save into a Junior ISA if your child if your child lives in the UK, is under the age of 18 and does not already have a Child Trust Fund (CTF). If they do have a CTF you can open a Junior ISA but you must ask the provider to transfer the Child Trust Fund into it.

There are two types of Junior ISA:

  • A cash Junior ISA – this allows you to save into a normal savings account but you won’t pay any tax on the interest you receive
  • A stocks and shares Junior ISA – you invest your money and you don’t pay any tax on any dividends or capital growth that you receive

Your child can have one or both types of Junior ISA.

Remember that while parents/guardians with parental responsibility can open a Junior ISA and manage the account, the money belongs to the child. The child can manage the account themselves from the age of 16 but cannot withdraw the money until they are 18.

Saving into a Junior ISA

Anyone can pay money into a Junior ISA and you will benefit from tax free interest/growth on your savings. And, because anyone can contribute to a Junior ISA, they are useful for building up savings from relatives – for example birthday or Christmas gifts.

As with the adult ISA, there are limits to the amount that you can save every tax year. In the 2015/16 tax year, the maximum you can save in total in a Junior ISA is £4,080. This maximum sum applies to the total ISA savings.

For example, if you have saved £2,000 into a cash Junior ISA in the 2015/16 tax year you will only be able to save a maximum of £2,080 into a stocks and shares Junior ISA in the same tax year.

You can transfer money between your child’s Junior ISAs and between a Child Trust Fund account and a Junior ISA but you can’t move cash between an adult and a Junior ISA.

The benefits of a Junior ISA

There are lots of benefits to saving in a Junior ISA:

  • All interest in a cash Junior ISA is paid tax-free
  • All dividends and capital growth in a stocks and shares Junior ISA is tax free
  • Parents/guardians manage the account but anyone can pay in
  • Child cannot access/withdraw the money until they are 18
  • You can build up a savings nest egg for your child which they can use when they are older
  • You can transfer your Child Trust Fund into a Junior ISA

52 Ways To Save Tax #12

SavingsOne of the major announcements in George Osborne’s 2015 Budget concerned the way in which savings interest would be taxed from April 2016. There are going to be significant changes to the tax regime on cash savings that will benefit the vast majority of taxpayers in the UK.

Keep reading to find out how putting you money in savings can reduce your tax bill and save you hundreds of pounds a year.

52 Ways to Save Tax – Part 12 : Put your money in a savings account

If you have some of your savings in a High Street savings account then you could be set to benefit from one of the new measures announced by the Chancellor in his 2015 Budget speech.

From April 2016, every basic rate taxpayer in the UK will be able to earn £1,000 in savings interest each year without having to pay any tax. Higher rate taxpayers will be able to earn up to £500 in savings interest.

The change is set to help around 28 million savers avoid tax on their money. It means that for around 95 per cent of savers, all the interest they receive on their savings will be paid without any tax being deducted – effectively giving a 20 per cent boost.

At present, banks and building societies deduct the basic tax rate of 20 per cent before paying your interest. If you don’t pay tax then you can register to receive your interest tax-free (using a R85 form) while if you’re a higher or additional rate taxpayer then you have to declare interest on your tax return and pay even more tax.

At present, if you are a basic rate taxpayer and you have £20,000 in a High Street savings account paying 2 per cent interest you would only earn £320 a year in interest. A higher-rate taxpayer would earn £240 and a top-rate taxpayer £220.

When the changes come into force in April 2016, you would earn £400 in interest.

The changes from April 2016

From the start of the tax year – April 6, 2016 – banks and building societies will stop automatically deducting interest from your savings. All the interest you receive will be paid tax-free.

If you earn below £16,800 a year you won’t have to pay any tax on savings interest. If you earn between £16,801 and £42,700 you will be allowed to earn £1,000 in interest without any tax being deducted.

If you earn between £42,701 to £150,000 you will have a £500 allowance  and if you earn more than this you will have to pay tax on your savings interest.

If you are a basic taxpayer it effectively means that you can have up to around £70,000 in an easy-access savings account (assuming a current interest rate of around 1.35 per cent) and earn itnerest without paying any tax.

By investing more of your cash in savings accounts from April it means that you will avoid the 20 per cent deduction and help you to reduce your tax bill.

52 Ways to Save Tax #10

If you sell an asset for a profit then you may have to pay tax on the money that you make. This is called ‘Capital Gains Tax’ and could leave you with a sizeable tax bill if you sell shares, antiques or investment property for a profit.

In the next part of our series ‘52 Ways to Save Tax’ we look how you can pay less tax by using your annual Capital Gains Tax allowances. Keep reading to find out more.

52 Ways to Save Tax – Part 10: Use your Capital Gains Tax allowance

Capital Gains Tax (CGT) is the tax that you pay on the profit that you make when you dispose of an asset. Remember that any tax that is due is paid on the ‘gain’, not the whole amount you sell the asset for.

For example, you buy a painting for £10,000 and sell it for £50,000. The ‘gain’ you make is £40,000 and any CGT that is due would be paid on this amount.

It is not just selling an asset that creates a potential Capital Gains Tax liability. You may also have to pay tax if you gift an item to someone else, swap it for another asset or if you got compensated for it (for example if you received an insurance payout because an asset was destroyed).

When you may have to pay Capital Gains Tax

You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell/dispose of a personal possession for £6,000 or more. Assets on which CGT may be payable include:

  • Jewellery
  • Paintings
  • Shares not held in an ISA or PEP
  • Antiques
  • Stamps and coins
  • Property that is not your main residence

When you don’t pay Capital Gains Tax

There are certain items that are exempt from Capital Gains Tax and certain annual exemptions that you can use. These will help you to dispose of an asset on which you have made a gain without having to pay any tax.

You don’t pay CGT on:

  • NISAs, ISAs or PEPs
  • Betting, lottery or pools winnings
  • UK Government gilts
  • Premium bonds
  • Personal possessions with a lifespan of less than 50 years
  • Most gifts to your husband, wife, civil partner or a charity
  • Your car – unless you’ve used it for business

You also have an annual Capital Gains Tax allowance, called the Annual Exempt Amount. This means that you only have to pay Capital Gains Tax on your overall gains above your tax-free allowance which, in the tax year 2014/15, was £11,000.

Working out your gains

You won’t pay any Capital Gains Tax if your total taxable gains are below your annual Capital Gains Tax allowance (£11,000 in the 2014/15 tax year). To work out what your gains are you should:

  • Work out the gain you have made on each asset that you have disposed of in the last tax year (shares, personal possessions etc)
  • Add together the gains to make a total
  • Deduct any allowable losses

If your total gains are below your allowance you won’t have any Capital Gains Tax to pay.

If your gain is above the CGT allowance then you will have some tax to pay. The basic rate of CGT is 18 per cent although higher rate taxpayers – which may include you if your gains added to your other income carry you into the higher band – pay 28 per cent.

52 Ways To Save Tax #5

In the fifth part of our series ‘52 Ways to Save Tax’ we look at a way that you can both save tax and help prepare yourself financially for the future. Keep reading to find out how topping up your pension can help you pay less tax.

52 Ways to Save Tax – Part 5 : Top Up Your Pension

When you pay into your pension you receive tax relief from HM Revenue & Customs (HMRC). And, over time, the effect of this tax relief on your pension can be significant. There are three main ways that paying into your pension can be tax efficient:

1. Tax relief

When you pay into a pension you get tax relief on your premiums. The way this works depends on whether it is a company or a personal pension and we look at this further below.

2. Tax-efficient growth

Your pension fund grows largely tax-free, which can help to boost the amount you have saved in your fund.

3. Tax-free cash

When you take your pension benefits you can usually take up to 25 per cent of the fund as a tax-free lump sum (depending on your pension scheme rules). The remainder of your benefits will be paid as a taxable income.

Company pensions

If you pay more into your company pension you will pay less tax. If you have an occupational/company pension, your employer deducts your pension payments from your pay before working out your tax.

So if you earn £40,000 a year and pay an extra £1,000 a year into your pension, then only £39,000 will be regarded as ‘taxable pay’. The effect is that you pay £200 a year less tax.

If you are a higher rate taxpayer the tax savings can be even greater. For example, if you earn £45,000 a year and pay £1,000 a year into your pension you would pay £400 a year less tax. This effectively means that a £1,000 pension contribution has only cost you £600.

Personal pensions

If you are self-employed or you are not a member of an occupational scheme, then you get tax relief in a different way when you pay into a personal pension. Any contribution to your pension gets a top-up to take account of basic rate of tax.

For example, if you pay £80 to your pension your pension provider claims back £20 tax on your behalf and adds it to your pension. Your total contribution is £100 but you only pay £80 of it yourself.

If you are a higher-rate taxpayer then you can claim the extra relief through your tax self-assessment form at the end of the tax year.

Limits on your tax relief

You can get tax relief on every penny you contribute to your pension, up to 100 per cent of your annual earnings, with an upper limit of £40,000 in 2014/15.

If you exceed this ‘annual allowance’ you may be liable to a tax charge and must tell HMRC through your tax return. However you may be able to ‘carry forward’ unused allowance from up to three years earlier.

52 Ways To Save Tax #4

In the fourth part of our series ‘52 Ways to Save Tax’ we look at one of the simplest ways that you can reduce the tax you pay on your savings and investments. Keep reading to find out how opening an ISA can reduce your tax bill and save you hundreds of pounds a year.

52 Ways to Save Tax – Part 4 : Open an ISA

The Individual Savings Account – better known as the ISA – is the UK’s most popular tax shelter, used by around 20 million savers and investors.

In the 2013/14 tax year, any British saver aged 16 and over was able to deposit up to £5,760 into a cash ISA and earn tax-free interest on those savings. Any interest that you make on your ISA savings is cash free, unlike traditional bank and building society accounts.

Investors are also able to use a separate ISA allowance for stocks and shares investments. The limit for investing in an ISA in 2013/14 was £11,520, although this was reduced by the amount you had already invested into a cash ISA.

For example, if you had maximised your cash ISA deposit in 2013/14 then you would only be able to invest £5,760 (£11,520 minus £5,760) into your stocks and shares ISA.

Changes to ISA limits in 2014/15

Since July 1st 2014 the annual limit for an ISA has risen significantly. Whereas previously there were limits on the maximum amount you could pay into your separate cash and stocks and shares ISAs there is now one general ISA limit.

From 1 July 2014 you can now pay up to £15,000 into an ISA. And, you are now allowed to invest the full amount as cash or stocks and shares, or a mix of both. In addition, you are now able to switch stocks and shares ISAs to cash ISAs.

Why ISAs are tax efficient

Interest on savings you hold in a cash ISA is not taxed, whether it is an instant access or term deposit. And, dividends are not subject to additional tax, interest on bonds is not taxed, and capital gains are not taxed.

An additional benefit of saving in an ISA is that there is no need to report interest or other income, capital gains or trades to HMRC. This is because this is not taxable income.

Here’s an example of how much you can save by holding your savings in an ISA. You hold £5,000 in an ISA with an interest rate of 3%. Over the course of a year your interest would be £150 with no tax to pay.

If you are a basic rate taxpayer and you had held this money in a traditional building society account for the same period you would have paid tax of 20% on your interest – equivalent to £30. Your interest payment would have been £120.

Some Ways To Pay Less Tax On Your Savings


Taxes are a fact of life. But, while you may not be able to avoid paying tax on your income, your shopping or your property, you may be able to earn tax-free interest on your savings.

If you’re a basic rate taxpayer, you’re probably paying 20 per cent tax on your savings interest. And, if you are a higher earner you may be losing 40 or 50 per cent of your savings returns to tax. If you want to ensure you’re getting the very best return on your savings it is vital that they are tax-efficient. Our guide gives you three great tips to paying less tax on your savings.

Maximise your ISA contributions

On 6 April 1999, the government introduced the Individual Savings Account (ISA). This type of account lets you save a certain amount of money each year and you’ll pay no tax on your returns.

In the 2012/13 tax year, the individual ISA allowance is £11,280. You can save up to £5,640 as cash and the remainder in stocks and shares. And, crucially, any money that you place in an ISA will earn gross rather than net interest. This ensures you don’t lose 20 per cent (or 40/50 per cent if you are a higher rate taxpayer) of your interest in tax.

From April 2013 the individual ISA limit rises to £5,760.

There are hundreds of ISAs available and, even if you don’t have the maximum to save, they are a great way of sheltering your savings from tax. Always consider using your ISA allowance before you put your savings elsewhere.

Register for gross interest if you’re not a taxpayer

If you’re not a UK taxpayer, you shouldn’t be paying tax on your savings interest. So, if you earn less than the threshold for paying tax – around £155 per week for under 65s – you should receive ‘gross’ rather than ‘net’ interest.

To do this, you need to speak to your bank or building society and complete a R85 form. This will register you for gross interest and ensure no tax is taken off before you receive your interest.

Take advantage of your partner or child’s tax status

If you have a partner than pays a lower rate of tax then you – perhaps they are a non-taxpayer – you could save your money in your partner’s name in order to benefit from paying less tax.

For example, you may be a higher-rate taxpayer and pay 40 per cent of your savings interest in tax. If your partner is a basic-rate taxpayer and only pays 20 per cent, you can save your money in your partner’s name and only pay 20 per cent tax.

Bear in mind that if you do this your savings will be in your partner’s sole name. Make sure you understand the implications of this before you decide on this course of action.

Another way to reduce the tax you pay on your savings is to open an account in your child’s name. If they earn less than the tax-free allowance then you can build up their savings without any tax being deducted. As above, your child will need to sign a R85 form (or you will need to sign it on their behalf).

You should remember that such an account has to be opened only with the express purpose of saving for your child. There are also restrictions on how much you can gift to your child without paying tax.


3 Ways To Pay Less Tax On Your Savings

Taxes are a fact of life. But, while you may not be able to avoid paying tax on your income, your shopping or your property, you may be able to earn tax-free interest on your savings.

If you’re a basic rate taxpayer, you’re probably paying 20 per cent tax on your savings interest. And, if you are a higher earner you may be losing 40 or 50 per cent of your savings returns to tax. If you want to ensure you’re getting the very best return on your savings it is vital that they are tax-efficient. Our guide gives you three great tips to paying less tax on your savings.

Maximise your ISA contributions

On 6 April 1999, the government introduced the Individual Savings Account (ISA). This type of account lets you save a certain amount of money each year and you’ll pay no tax on your returns.

In the 2012/13 tax year, the individual ISA allowance is £11,280. You can save up to £5,640 as cash and the remainder in stocks and shares. And, crucially, any money that you place in an ISA will earn gross rather than net interest. This ensures you don’t lose 20 per cent (or 40/50 per cent if you are a higher rate taxpayer) of your interest in tax.

From April 2013 the individual ISA limit rises to £5,760.

There are hundreds of ISAs available and, even if you don’t have the maximum to save, they are a great way of sheltering your savings from tax. Always consider using your ISA allowance before you put your savings elsewhere.

Register for gross interest if you’re not a taxpayer

If you’re not a UK taxpayer, you shouldn’t be paying tax on your savings interest. So, if you earn less than the threshold for paying tax – around £155 per week for under 65s – you should receive ‘gross’ rather than ‘net’ interest.

To do this, you need to speak to your bank or building society and complete a R85 form. This will register you for gross interest and ensure no tax is taken off before you receive your interest.

Take advantage of your partner or child’s tax status

If you have a partner than pays a lower rate of tax then you – perhaps they are a non-taxpayer – you could save your money in your partner’s name in order to benefit from paying less tax.

For example, you may be a higher-rate taxpayer and pay 40 per cent of your savings interest in tax. If your partner is a basic-rate taxpayer and only pays 20 per cent, you can save your money in your partner’s name and only pay 20 per cent tax.

Bear in mind that if you do this your savings will be in your partner’s sole name. Make sure you understand the implications of this before you decide on this course of action.

Another way to reduce the tax you pay on your savings is to open an account in your child’s name. If they earn less than the tax-free allowance then you can build up their savings without any tax being deducted. As above, your child will need to sign a R85 form (or you will need to sign it on their behalf).

You should remember that such an account has to be opened only with the express purpose of saving for your child. There are also restrictions on how much you can gift to your child without paying tax.