4 Ways To Reduce Your Tax Bill

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First it was petrol prices, then it was bread and now tax rates have increased too. Since April 2008 the basic rate of income tax has increased by 100% to 20 pence in the pound. There are a number of ways to reduce your tax bill taking advantage of your allowances and entitlements, which most people are not aware of.

Income Tax
All UK citizens are entitled to a tax free allowance. In 2008/2009 this allowance amounts to 5,435 pounds. This is the sum that you can earn before any tax is due to the Inland Revenue. Many people who are married, fail to make use of their personal allowances and needlessly pay too much tax. Take the following example: Wendy and Fred are married. Fred goes to work everyday as a policeman and earns 30,000 pounds a year. Wendy and Fred have a joint savings account which earns 1000 pounds of interest each year. As a rseult of the account being in both their names, tax is due on Fred's 500 pound share. Wendy should have opened the account in her name, all the interest that was earned would have been tax free as she does not work saving over 100 pounds in tax.

Capital Gains Tax
Like Income tax, individuals also have a capital gains tax allowance each year, which currently stands at 9,600 pounds. The government allows that shares or property that have increased in value and have resulted in a capital gain can be transfered between partners, allowing both allowances to be used to total 19200 pounds. Another important factor that should be considered with recent stock market falls is that capital losses can be carried forward and offset against future gains. The key is to prepare and think ahead.

Inheritance Tax
Levied on the estate of a deceased person inheritance tax is often the most hated, but with enough preparation most people will never need to pay it. The transfer of assets between husband and wife is exempt from Inheritance tax purposes and as a result allowances of 325000 pounds per person are often wasted. Couples often prepare for this by writing in their will that on the death of the first person, 325000 of their assets are based on to their children, allowing for a total inheritance exemption of 650000. Another alternative is to gift items to your children while you are still alive. Assuming you survive for 7 years, these gifts will not require inheritance tax to be paid.

Home Businesses
If you have started a business from home you might be missing out on a number of tax expense entitlements. If you run your busienss from a section of your house you are able to recoup a share of the cost of expenses that you might pay such as eletrcity, phone calls and rent against any income that the business generates. The easiest way to claim any of these expenses is via your self assessment tax return which can be requested from your local tax office. The proportion on which you can claim is worked out based on the total number of rooms used for your business divided by the total number of rooms in the house.

The information above is for general knowledge and does not constitute tax advice or help. You should not rely on this information to make (or refrain from making) any decisions. Always remember to get independent, professional advice for your own particular situation.

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