At NFU Mutual we want to help you plan for your family’s future – not the taxman’s.
Taxation can be a complicated area of personal finance and you can easily miss opportunities to reduce the amount of tax you pay. Your job, your savings and your family’s circumstances can all have an impact on the amount of income tax you pay each year.
And as taxation rules change it’s important to take advice to ensure you do not pay more than you have to, so that you can enjoy more money as a family.
How to save tax efficiently
One way to stop tax eating into your money is to put your cash into a tax-efficient savings and investment wrapper such as an Individual Savings Account (ISA).
A Stocks and Shares ISA can include individual shares or bonds, or pooled investments, such as investment trusts.
The main advantage of investing in a Stocks and Shares ISA is the potential for higher returns than with a Cash ISA, which will pay interest at regular periods. NFU Mutual offers a choice of stocks and shares ISAs. Many providers offer Cash ISAs which offer a safe savings option, but savings growth can be low when interest rates are low.
There's also the Lifetime Isa to consider, a new tax-free savings or investments account designed to help under 40's buy their first home or save for retirement.
Announced in the 2016 Budget, they were made available to those aged 18-39 from April 2017.
It's important to remember that the value of stocks and shares can go down as well as up, so you might not get back the amount invested.
Annual limits on ISAs
Because of their tax advantages, there is an annual limit on how much money you can put into ISAs. The limit for the 2018-19 tax year is £20,000.
Both income and Capital Gains from a Stocks and Shares ISA are tax-free.
You can reduce your tax bill further by structuring your savings, so they're owned by the lowest-rate taxpayer within a marriage/civil partnership. However, you should note that this is classified as a gift and you would lose ownership of the asset.
Tax on savings accounts
There is a tax-free Personal Savings Allowance of £1,000 (or £500 for higher rate taxpayers) on the interest that you earn on your savings.
To be eligible for the £1,000 tax-free Personal Savings Allowance your taxable income needs to be below the higher rate tax threshold. To be eligible for the £500 tax-free Personal Savings Allowance your taxable income needs to be below £150,000 a year.
Income tax on dividends
Dividends on shares (payments a company makes to its shareholders) are subject to income tax.
From April 2018, the Dividend Allowance means you won’t have to pay tax on the first £2,000 of your dividend income, no matter what non-dividend income you have.
You’ll pay tax on any dividends you receive over £2,000 at the following rates:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
Dividends within your allowance will still count towards your basic or higher rate income tax band and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £2,000 allowance.
Tax on investments
Returns on investments can be subject to Income tax, Capital Gains Tax (CGT) or both.
Capital Gains Tax (CGT) is a tax on the gain or profit you make when you sell something that you own, such as shares.
In the 2018/19 tax year there's a tax-free allowance worth £11,700 for each individual, so you'll only be charged CGT for gains on assets above this level.
Taxable gains are added to other income and are taxed at 10% for any amount within the basic rate threshold and at 20% for any amount going into the higher rate threshold.
Tax on buying shares
When you invest in UK shares you're taxed on the transaction. This is known as Stamp Duty Reserve Tax (SDRT).
You can find out more about taxes on shares at gov.uk.