In last month’s article, I briefly outlined ways in which you can look to reduce your tax liability before 5 April passes. The two main tax saving ideas highlighted were private pension contributions and training costs.
Let’s take a look at private pensions in
The benefits of pension contributions are twofold. Firstly, they provide you with tax relief in the year in which the contribution is made. In 2018/19, you can have tax relief on the lower of pension contributions up to 100% of your earnings, or the £40,000
If you have unused pension allowances from the past three tax years, you can carry them forward. Secondly, pensions are a useful saving method to help you build up funds for your retirement – which may seem a long way off!
So, how is the tax relief given? Basic rate tax relief is given by adding 20% to the net contribution you make, so that the gross amount is invested into your pension. So, for example, if you were to make an £80 contribution per month into a pension, basic rate tax of £20 is added, so that the gross contribution made is £100 each month. If you are a higher or additional rate taxpayer, you are given tax relief in a slightly different way. Your basic rate band is extended, so that you pay more tax at 20% as opposed to 40%/45%. For 2018/19, the basic rate band is £34,500. So, £100 per month would mean an annual contribution of £1,200, which would extend your basic rate to £35,700.
Other tax reducing ideas
- Charitable donations made through gift aid give the charities an extra 25p for every £1 donated, without costing you more
- Buy assets. Cameras, loupes and computers are large items of capital expenditure which if you purchase before 5 April can give you tax relief in 2018/19. You will get the full cost deducted, unless there is any private use.