Delivered against the backdrop of the worst recession since the Second World War, last month's Budget was always going to be a case of trying to fit a square peg into a round hole. Quite simply, there is too much debt and not enough money.
But in an attempt to appease the masses ahead of next year's general election, Chancellor Alistair Darling only raised income tax for those earning over £150,000 - that's just 1% of the country.
But this doesn't mean the other 99% should let the Budget pass them by. In fact, the start of a new tax year is the perfect opportunity to give your finances the once-over. With the help of a trusted financial adviser, here are the top five most tax-efficient things to do this year:
1. Maximise your ISA allowance
Savers will now be able to keep £10,200 in the shelter of a tax-free ISA - £5,100 of which can be held in cash. If you are more than 50 years old, the new limit kicks in from 6 October this year. The rest of us will have to wait until April 2010 to make use of the extra allowance. "If you have no new spare cash with which to top up your ISA, roll some over from other savings accounts," says Alan Smith, at financial planners, Capital Asset Management.
2. Distribute savings tax-efficiently
Put savings in lowest-earning spouse's name to reduce tax payable on interest earned. If they are non-tax payers, you will need to complete an R40 form, as banks and building societies will otherwise pay interest net of basic rate tax automatically, says Alan. He also recommends considering offshore bond wrappers to access tax free gains. "With careful management these can be accessed with nil or minimal tax paid," he said.
3. Don't pay more tax than you need to
Make sure you're paying the right amount of tax and that your tax code correct. You should also be claiming back all expenses you are entitled to. "Especially if you’re self employed, a decent accountant can pay for themselves many times over," says Julie Bayley at Keswick Independent Financial Advisers.
4. Build up your pension using maximum tax relief
Tax relief on pensions for people earning more than £150,000 a year will be restricted from April 2011 but anyone else can still get up to 40% relief on contributions made to their pot, which makes it one of the most tax-efficient ways to save. Even non-tax payers can get 20% relief, says Alan Smith. He adds that this may not last, so people should take advantage while they can.
5. Seek advice!
Few people understand the intricacies and loopholes of a forever-changing taxation system but taking advice from specialists who do could result in a long-term saving that far outweighs the cost of the service.
You can search for the right tax adviser for you here.
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