Advice + Tax + Accounts for smart business owners.
December 30th 2021

Simple ways to save tax (part 2)

There are lots of ways to reduce your tax bill legally, last month we looked at potential savings for both employees and those with savings, this month we are going to look at tax savings for investors and landlords.

Cut your investments tax bill

9. Dividend allowance

Each year, you can earn a certain amount of income from dividends before paying tax.

This was reduced on 6 April 2018 - but you can still earn up to £2,000 in dividend income without paying tax each year.

10. Capital Gain tax (CGT) allowance

Capital gains is the profit you make from selling certain investments, including second homes, art, antiques and shares.

Capital gains of up to £12,300 are tax-free in 2021/22. Married couples and civil partners who own assets jointly can claim a double allowance of £24,600.

Remember, if you don’t use the allowance within the tax year, it’s lost forever. You can’t add your tax -free allowances together for different years.

11. No CGT on shares held in an ISA

You won’t pay capital gains tax when you sell shares or units held in an ISA.

12. Transfer assets to your spouse

You won’t be charged capital gains tax if you transfer assets to your spouse or civil partner – and a lower-earning spouse may pay more favourable income tax rates.

So, it may be worth transferring savings and investments to your husband, wife or civil partner, if they pay a lower rate of tax than you do.

13. Junior ISAs

When making gifts to your own children, you can avoid paying tax on the interest by paying into a junior ISA.

The annual allowance for Junior ISAs is £9,000 in 2021/22.

14. Switch to capital-boosting investments

If your investments held outside an ISA are generating a substantial income, higher – and additional-rate taxpayers might be able to cut their bill by switching to investments targeting capital growth.

As well and the annual capital gains allowance( £12,300 in 2021/22), you may benefit from lower tax rates. Higher-rate taxpayers pay 20%/28% on capital gains, but 32.5% in dividend income.

15. Invest with an Enterprise Investment Scheme

To encourage investments in early-stage businesses, the government offers extra tax relief on some investments.

If you buy shares in a qualifying company, typically through crowdfunding investments sites, you’ll be able to deduct 30% of your investment from your income tax bill for the year. The amount you can invest in any given year is £1 million – potentially saving up to £300,000 in income tax.

16. Make the most of Venture Capital Trusts

Similarly, Venture Capital Trusts (VCTs) also offer 30% tax relief, but only on investments up to £200,000. VCTs are a specialist type of investment trust, meaning the investments are managed by a fund manager, rather than chosen yourself.

To qualify for the relief, you’ll need to buy the shares at launch, and hold them for at least five years.

17. Buy shares through your company

If your employer offers free shares or the right to buy shares at preferential rates through a government-approved scheme, the value of shares is exempt from income tax and National Insurance.

However, it’s not entirely tax-free. You’ll need to pay capital gains tax when you eventually sell your shares.

Save on property income tax

18. Use the Rent-a-room relief

The Rent-a-room scheme allows you to receive up to £7,500 in rent each tax year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home, and you’ll need to live in the property as well.

If two people who share a property take advantage of the scheme, they can only claim £3,750 each. This is reduced proportionally according to the number of people owning the home.

19. Landlord’s expenses

If you rent out property, you can deduct a range of costs from your taxable income.

These include, but are not limited to, the wages of gardeners and cleaners, letting-agency fees, ground rents and service charges, accountant’s fees and landlord insurance.

20. Landlord’s replacement of domestic items

Landlords can claim tax relief on money spent to replace ‘domestic items’ in their furnished rental properties.

The types of items you can claim relief on include beds, carpets, crockery or cutlery, sofas, curtains, fridges and other white goods.

But this only applies to items being replaced – not those bought for a property for the first time. You can also only claim the amount for a like-for-like replacement.

21. Tax relief on your buy-to-let mortgage

When you take out a mortgage to buy a rental property, you can claim a 20% tax credit on mortgage interest.

22. Reduce CGT on a rental property

Landlords are normally liable for capital gains tax when they make a profit from selling a rental property.

However, if the property has been your main home at some time in the past, you can claim additional relief for the last nine months of ownership.

Contact us to discuss any of the topics in this article.

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