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Unused Tax Allowances
If your spouse has any unused tax allowances or pays tax at a lower rate, it makes sense to utilise this. If you are a higher rate taxpayer you must declare savings interest and dividend income to HMRC and extra tax is deducted. But if you give your savings to your spouse then they would pay less tax, boosting your income. Of course, you must trust your spouse. Don’t hold the money in joint names because HMRC will assume you each earn half the interest.
Individual Savings Account (ISA) allowance
During the 2009/10 tax year, make sure you fully use your £7,200 ISA allowance (or £10,200 for those over 50). Up to £3,600 (£5,100 for those over 50) of this can be invested in cash or, if you wish, the full amount can be invested into stocks and shares, the capital gains from which are tax-free. There is no capital gains tax payable when you sell shares or units held in an ISA.
Age-related allowance
If you are a pensioner, once your income exceeds £22,900 (2009/10) you will lose some or all of your age-related allowance, as the allowance will be reduced by £1 for every £2 of income above the limit. If you are very close to being affected by a reduction in the age-related allowance you could consider using tax-free savings, such as a cash Individual Savings Account (ISA) and National Savings Certificates. Another option is certain insurance company bonds, which can delay tax payments. The key thing is not to allow tax concerns to dictate your whole investment strategy or you could actually end up with less income.
Gift Aid
If you are over 65, donations to charity through Gift Aid can reduce your taxable income to below the level at which you start to lose out on age-related allowances. If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations. |
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