Top 10 Tips To Use Your Tax-Free Allowance and Pay Less Taxes

Check out the list of ten helpful tips to reduce your tax bill right now and in the years to come.

Over 35% of Brits are paying too much tax, and you might be one of them. While there may be some impressive tax giveaways in the near future, you'll have to wait until 2015 to get them. But you don't have to wait until that time to relieve the taxman's burden on your pockets. Check out the list of ten helpful tips to reduce your tax bill right now and in the years to come.

Claim business expenses

If you run your own business, make sure to keep your receipts and set up a system to record all your expenses. Everything from office supplies, to travel expenses and business lunches should be recorded. As long as the expenses are legitimate purchases made solely for business, you can claim for them on your yearly tax bill.

Collect tax relief on pension contributions

Contribute funds into your personal or company pension plans, and you'll get a tax relief based on your highest rates, which could be anywhere from 20-50%. If the pension contributions are not made through your payroll, you'll have to declare your payments on your annual tax return in order to claim the relief.

Cut back on 'sin taxes'

Taxpayers pay billions of pounds a year on stealth taxes; the biggest of which are the taxes levied on fuel, alcohol and tobacco.

The taxes on cigarettes and alcohol account for more than 75% of the price you pay when you purchase them at the retailer. You also pay steep taxes on wine, spirits and beer, and the stronger the drink, the more taxes you pay. Taxes account for 60% of the retail cost of petrol and fuel. And while there's no way to avoid fuel costs if you have to get from point A to B, you can cut back on your driving, smoking, and alcohol consumption because these habits are costing your pockets as well as your health.

Get Gift Aid on donations

Give to a worthy cause and get a relief from taxes. Whenever you donate to charity through the Gift Aid scheme, the value of your gift will go up by 25%. Declare your Gift Aid donations when you fill out your taxes in order to get the benefit of the tax relief.

Manage your capital gains

You'll have to pay Capital Tax Gains (CGT) if you profit from certain investments - selling shares, property and other assets. But since you're allowed a yearly tax-free allowance for CGT, you can use it to reduce your tax payments. This way you'll only be liable for taxes above the threshold.

You can take steps to avoid paying CGT by spreading your gains over the course of a few years and using ISAs where possible.

Make use of childcare vouchers

If you're a working parent, you can reduce your income tax through childcare vouchers. Swap a percentage of your salary for childcare vouchers and you can reduce your taxable earnings by close to £2,900 yearly.

Open a Cash ISA

Over 20 million savers across the UK use ISAs to get relief from taxes. For the tax year 2013/14, you can deposit £5,760 into a cash ISA and earn tax-free interest on your savings. This figure will go up for the next tax year, but if you don't use it, you'll lose it.
 
When you're saving towards retirement or for any other reason, make sure to save in a cash ISA otherwise you'll have to pay taxes on any interest earned.

Open a stocks and shares ISA

The stocks and shares ISA provides tax relief from any capital gains you earn from investing in shares, bonds, and other investments.

For the tax year 2013/14, you can invest your full allowance of £11,520 into your S&S ISA, or deposit half into a cash ISA to diversify your investments.

Take tax-free benefits

Pensioners, disabled individuals, and working families can benefit from a wide range of state benefits, including tax free payouts like Pension Credit, Child Benefit, Working Tax Credit and others.

Transfer assets to your spouse

Give assets to your spouse or civil partner and you'll split any capital gains and increase the limits of the CGT allowance. The allowance will double when shared between the both of you, which could lead to savings of over £3,000 for this tax year.

For readers wanting more info about tax related issues such as your tax free allowance, Sam Jones the author suggests visiting the helpful advice pages at uSwitch.

License: You have permission to republish this article in any format, even commercially, but you must keep all links intact. Attribution required.