Boost Your Finances by Dodging These Four Tax Blunders

Navigating the labyrinth of tax codes and allowances in the UK can be quite daunting. However, understanding them can lead to significant financial benefits. In The Independent today, Shona Lowe, a financial planning maven from abrdn, has shed light on four frequently overlooked tax pitfalls that might be nibbling away at your finances.

1. The Hidden Gems of Pension Perks

Why Pensions Matter

By channeling a part of your earnings into your pension, you’re essentially lowering your taxable income. So, not only are you setting aside money for a comfortable retirement, but you’re also paying less tax now.

The Government’s Generosity

Lowe accentuates a nifty perk: the government often contributes to your pension in the form of tax relief. Think of it as a financial thank you note for securing your future. This means your retirement nest egg gets a significant uplift.

2. Your Legacy: Keeping More In The Family

Gifts Can Be Tricky

While gifting during your lifetime might seem like a straightforward way to reduce your estate’s value and the ensuing inheritance tax, there’s a catch. Lowe warns that not all gifts immediately reduce the value of your estate for tax reasons. Depending on the gift’s nature and its recipient, it might take up to seven years for its value to exit your estate completely.

Record Keeping and Future Planning

Since gifts come with diverse rules, maintaining a clear record is crucial. Moreover, Lowe emphasises the importance of an updated will and power of attorney. She also advises informing your pension provider about the intended recipients of your pension savings upon your demise.

3. Capital Gains Tax: Making The Right Moves

Understanding Capital Gains Tax (CGT)

Simply put, CGT is the tax you pay when an asset you own, like an investment, appreciates in value and you decide to part with it.

Circumventing CGT

Lowe suggests a straightforward approach: house your investments in tax-efficient containers, such as a stocks and shares ISA or pension. This way, your investments mature without attracting CGT. If this feels overwhelming, don’t hesitate to seek specialist advice – it’s often indispensable in this domain.

4. Unleashing the Power of ISAs

The Benefits of ISAs

Individual Savings Accounts, or ISAs, are your tax-free sanctuaries. For every tax year, you can allocate up to £20,000 across different ISA products.

Diverse ISA Choices

Whether you’re stashing away money for a rainy day in a cash ISA, investing for a prosperous future in a stocks and shares ISA, or saving for a milestone like your first house with a Lifetime ISA, there’s an array of choices. Lowe also adds a cherry on top: children and grandchildren have their Junior ISA allowance, which stands at £9,000.