Ten Xmas Tax-Saving Tips

It's reckoned that we Brits waste £9.3 billion a year by paying too much tax. Here are ten easy ways to claw back your share of this surplus.

We Brits waste £9.3 billion a year by paying too much tax, accord to a recent report by IFA Promotion (IFAP). With 25 million households in the UK, this amounts to a tidy £372 per household per year. So, if you'd like to reclaim an extra £31 a month -- and perhaps a great deal more -- with little effort, then try these ten Christmas tax tips for size:

1. Plan ahead for Inheritance Tax

One of the biggest tax giveaways is Inheritance Tax (IHT), which we overpay to the tune of £1.9 billion a year. I describe IHT as `a bill which arrives after you depart', because it is paid by your estate after your death. If you have assets (including your home) worth over £312,000, then IHT could gobble up two-fifths (40%) of your estate over this `nil-rate band'. For more advice on avoiding this death duty, read this guide from IFAP.

2. Use your yearly Individual Savings Account (ISA) allowance

You can deposit up to £3,600 per tax year inside a special savings account known as a cash ISA. ISAs earn tax-free interest which you don't have to declare to the taxman. IFAP reckons that by moving money from ordinary savings accounts into ISAs, we would make an extra £263 million a year.

3. Claim your tax credits

Up to £3.7 billion of tax credits are on offer from HM Revenue & Customs (HMRC) and the Department for Work and Pensions. To find out if you can claim Child Tax Credit, Working Family Tax Credit or Pension Credit, visit the independent EntitledTo website. Nine in ten families can claim some kind of help via tax credits.

4. Sort out your tax return

If you need to submit in a self-assessment tax return and fail to do so by 31 January, then you will automatically be fined £100. Further delays will lead to more penalties, so be sure to submit your SA100 form in good time. This could save taxpayers £479 million in needless fines.

5. Claim back savings tax

HMRC automatically grabs a fifth (20%) of your savings interest `at source' -- before you receive it. So, if you're a non-taxpayer or only pay tax at 10%, then you could be paying too much tax. Get a form R40 from the taxman and claim what's owed -- you can go back as far as 2002/03. In addition, fill in a form R85 at your bank or building society to stop future overpayments. This would save three million people with low earnings a total of £330 million a year.

6. Pump up your pension

By making extra contributions into a company or personal pension scheme, you can grab back some of your income tax. For example, a basic-rate (20%) taxpayer putting £80 into a pension would see £100 invested. For a higher-rate (40%) taxpayer, £60 turns into £100, thanks to an extra £20 refunded. IFAP estimates that optimising pension contributions could make us £726 million a year.

7. Use Gift Aid when giving

Gift Aid is a tax-efficient way of donating money to charities, because the taxman adds tax relief to your contributions. By using a deed of covenant, Gift Aid or payroll giving, we could give an extra £936 million to good causes. And Christmas is a great time to think of others and give generously...

8. Make money from your employer

If you work for a company which has shares listed on a recognised exchange, then you may be offered membership of various share-related savings schemes. For example, in The Best Savings Plan In Britain, I sang the praises of Sharesave, which allows you to save up to £250 a month and use this pot to buy shares at a discount to the market price. These plans can provide you with low-risk, tax-free returns.

9. Make use of Child Trust Funds (CTFs)

All children born after 31 August 2002 are entitled to have a Child Trust Fund, which is a tax-free savings plan designed to encourage family, relatives and friends to save for children. In total, up to £1,200 a year can be deposited into a CTF. This money can go into savings accounts, stock-market funds or shares. IFAP reckons that better use of CTFs could produce a tax saving of £242 million a year.

10. Be smart with your spouse

If you pay tax but have a non-taxpaying wife or husband, then you can save tax by transferring income-generating assets into his/her name. Every adult has a tax-free allowance of at least £6,035 in the 2008/09 tax year, so make sure that your other half's allowance doesn't go to waste. £144 million could be saved by redistributing savings in this way. Another £264 million could be saved by making use of spouses' Capital Gains Tax allowance (£9,600 for 2008/09).

Finally, IFA Promotion found that the four most hated taxes were fuel duty, council tax, the TV licence and IHT, in that order. Nevertheless, despite our dislike of taxes, over four in five adults (82%) admit to having taken no steps to reduce their tax burden over the past year. Don't be one of them!

Finally, three wisecracks about tax

1. Sir Winston Churchill: "There is no such thing as a good tax."

2. John Maynard Keynes: "The avoidance of taxes is the only intellectual pursuit that carries any reward."

3. Mark Twain: "The only difference between a taxman and a taxidermist is that the taxidermist leaves the skin."

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