Paying tax is annoying. Paying more tax than you need to is really annoying. Honestly, it’s easy to save tax: it’s usually a question of a quick emailed form. Here are some breaks you might not be claiming – and why you and your family should.
1. Granny’s own tax break. This is not a discount on Werther’s Originals. Rather, if your children are lucky enough to be cared for by their grandparents then the grandparents can get a National Insurance (NI) credit. That’s because if they weren’t providing the care then the parents would have to pay for it – so in return for their unpaid work, they can claim NI credits which could boost their state pension. However, only 19,000 grandparents are estimated to have applied for this credit – there are believed to be 100,000 who are eligible. The break will be useful for any granny/grandad who doesn’t have enough qualifying years of NI to count towards a full state pension (nowadays you need 35 years.) There are rules – the children must be aged under 12 – but in good news, payments can be backdated to 6 April 2011. You’ll need to fill in this form.
2. Marriage Allowance. There are estimated to be one million couples missing out on this break which, allowing for backdating, could be worth up to £900. It affects couples who aren’t both taxpayers. If you, for example, don’t pay tax but your husband is a basic rate taxpayer then you could transfer £1,190 of your tax-free personal allowance of £11,850 to him which would reduce his tax bill by £238 a year. This benefit was introduced in 2015 (when it was worth £212) and you can backdate to then which, says Sarah Coles of Hargreaves Lansdown, means a total tax break of £900. Apply here.
3. Isas. Admittedly cash Isa rates are nothing to write home about, but interest rates could go up – which would make the tax-free environment of an Isa even more attractive. So why have savings in a taxable account? Bung them (up to £20,000 this tax year) in an Isa. And for investments, the argument for holding in an Isa is more compelling: if you’re lucky enough to see your investments grow in value over the years then held outside an Isa framework you could be subject to capital gains tax when you sell. Remember you can have cash and shares Isas in the same tax year – as long as the total investment in that year isn’t more than £20,000. And you can switch between cash and shares in your Isa when you want to.
4. Pensions. Free money from the government: tax relief on your contributions, meaning for a basic rate taxpayer it costs £80 to put £100 in a pension. Yet still millions of women have inadequate pensions. Grab this tax break now.
5. The difficult stuff. Inheritance tax is not a fun subject to bring up with elderly relatives. Yet I bet most of them wouldn’t like to see more than is necessary of their estate going to the government in tax. There are loads of ways of ensuring an estate doesn’t pay much (or any) inheritance tax – such as lifetime gifts. All you ever wanted to know about this subject is here.
See our SMM guides to Isas here and pensions here.