How to find your own tax havens and save more money

This extra cash can help your pension grow significantly, so it makes sense to max out your contributions where you can. The Government allows us to pay £40,000 a year into pensions and receive this benefit every year, and you can also use the unused allowances from previous years in some situations.

Some people also use a Lifetime ISA to save for retirement, or for a first home. With this, the government adds 25% to your contributions, if you put in a
maximum of £4,000 a year.

‘Whether it’s your pension or Lifetime ISA, it’s important to get as much free Government cash as you’re entitled to,’ says Emma Keywood, senior product
manager for investing app Dodl.

‘Anyone using a Lifetime ISA can also get up to £1,000 of free money from the government each year, if you put in the maximum £4,000 contribution. So, if you have some spare cash you were planning to put into your Lifetime ISA and still have some of this year’s allowance left, make sure you do it before the tax
year ends and claim that free cash.

Emma adds: ‘Just be aware that there is an exit penalty of 25% if you withdraw Lifetime ISA money before age 60 and don’t use it to buy your first property.’

Use your Capital Gains tax allowance

Any investments you have outside an ISA or pension are subject to capital gains tax (CGT), which is levied at up to 28% depending on the asset and your earnings.

However, investors always have an allowance for capital gains, meaning that a certain amount can be made tax-free. You can make investment gains of £12,300 in 2021/22 without paying any tax, but this allowance cannot be rolled over, which means it is best to make the most of it every year if you have investments outside
ISAs or pensions.

Jason Hollands, at wealth platform BestInvest, suggests a strategy known as ‘Bed And ISA’ or ‘Bed And Pension’ – where you sell assets outside tax wrappers up to the CGT allowance and then use the money to fund either ISA or pension contributions.

He also points out that you can transfer assets between spouses to make use of both members of a couple’s ISA allowances. ‘Transfers of assets such as shares
or funds between spouses – known as interspousal transfers – do not give
rise to a tax liability and so doing this ahead of selling an asset can prove very tax efficient,’ he says.

Consider salary sacrifice

With National Insurance about to rise, using salary sacrifice will become more attractive. With salary sacrifice, the government will let you give up a portion of your salary, and spend it on certain things free of tax, and sometimes NI.

Benefit can include pensions, childcare vouchers (if you’re already a member of a scheme) bike-to-work and technology schemes.

‘This won’t boost your take-home pay, but will cut your tax bill,’ says Sarah Coles, personal finance expert at Hargreaves Lansdown. To use salary sacrifice, you may
need to persuade your employer to set up a scheme if they have not already
done so.

However, because the scheme saves money for both the employee and the employer, it may be prove more attractive.

Adrian Lowery, personal finance expert at investment group BestInvest, says that the schemes can be used strategically if you’re just on the edge of a tax band, dropping you out of higher rate tax altogether by taking down your salary.

If you are eligible for Child Benefit but earn too much to receive it, salary sacrifice can also help to drop your income so that you still get the benefit.

‘If either you or your partner’s income is over £50,000, you will have lost some or all of your child benefit. However, by keeping your taxable income below that threshold you may be able to regain some of your allowance,’ says Heather Owen, financial planning expert at Quilter.

Make IHT exempt gifts

Inheritance Tax, often known as IHT, is paid on an estate after death.

It is levied at 40%, but is often known as the ‘voluntary tax’ as there are so many ways to ensure that your family does not pay it. One way to do this is to ensure you regularly make exempt gifts to family members while you are still alive.

Both you and a spouse can make £3,000 of gifts every year free of tax, and you can carry this forward for one tax year, so if you have not done this recently you can make £12,000 of gifts this tax year if you are a married couple.