In this episode of Informed Choice Radio, Martin talks about five important tax breaks you might be missing.
There is also a roundup of the latest personal finance news and an update from the world of Informed Choice.
The UK has the longest tax code handbook in the world, containing more than 17,000 pages. This results in a wasteful tax system.
This year, our collective national tax waste was calculated by unbiased.co.uk to be £4.6bn.
In this episode, Martin talks about five important tax breaks you might be missing.
1 – Marriage tax allowance
This was introduced last April and is worth £220 this tax year. Despite 4.2m married couples and civil partnerships in the UK being eligible for this tax break, HMRC say only 1m couples have done so.
Marriage tax allowance allows one partner to transfer part of their tax-free income tax personal allowance to the other partner.
One of the partners must earn less than £11,000, the level of the personal allowance, and the other has to be paying income tax at the basic rate.
It takes less than five minutes to apply online for marriage tax allowance and you can backdate the claim to the previous tax year. Claim online at https://www.gov.uk/marriage-allowance/how-it-works
2 – Tax relief on pension contributions
Every single year, thousands of people who pay their income tax through the self-assessment system fail to claim the full income tax relief to which they are entitled on the contributions made to personal pensions.
When you make a personal pension contribution, basic rate income tax relief is automatically added to your pension pot. But if you’re a higher or additional rate taxpayer, you need to claim the difference through the self-assessment process or by contacting HMRC.
HMRC will allow you to claim the extra tax relief for the last four tax years, so if you’ve forgotten to claim or didn’t realise you could, get on the phone to the taxman and ask for your money back!
3 – Not using tax efficient savings and investments
Last year, £1.2bn of income tax was wasted by people not using their cash ISA allowances.
£104m in capital gains tax was wasted by investors not using their stocks and shares ISA allowances.
Adults have an ISA allowance of £15,240 in the current tax year, rising to £20,000 next April.
With the introduction of the Personal Savings Allowance, Martin explains in this episode why the cash ISA might not be as important as before, but over time it can still be worth using your ISA allowance each and every tax year.
4 – Failing to reduce capital gains tax
We each get a capital gains tax allowance, which is £11,100 in the 2016/17 tax year. So profits on the sale of investment assets realised up to that amount are free of capital gains tax.
One of the biggest mistakes we see people make with capital gains tax is failing to use their annual allowance and their partner’s annual allowance.
Husbands and wives, or civil partners, can effectively combine the £11,100 annual allowance to realise up to £22,200 of capital gains in this tax year.
Martin explains how this works.
5 – Paying too much inheritance tax
Inheritance tax is paid at 40% on the value of your taxable estate above the level of your nil rate band, which is £325,000 at the moment.
The nil-rate band is due to be higher in the future with the introduction of an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017 to 2018, rising in stages to £175,000 in 2020 to 2021.
But despite the availability of the nil rate band, we still waste millions each year in unnecessary inheritance tax payments.
Last year, that figure for the UK was a total of £550m. We’re wasting this money because we fail to plan.
Personal finance news update
-Government plans to allow pensioners to sell their pension annuities back to insurance companies have been abandoned.
-Price inflation rose sharply in the year to September, according to the latest official figures.
-House prices have continued to rise strongly following the EU referendum in June, with rise in eastern and southern England driving prices higher.
-Nearly two-thirds of Brits always splurge when buying teabags while more than three-quarters scrimp on frozen foods and cleaning products.
-New research from American Express has found the half term holiday will cost parents £276 per child, equating to £552 for the average family with two children.
Useful links mentioned in this episode
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