Top Ten Tax-Busting Tips

Follow these top tips for saving tax and bring your 'tax freedom day' forward.

The 2nd of June (today) should be a big date in your diary. Why? Because this day marks the date you'll effectively stop working for the taxman and start working for yourself. Theoretically, this means that until the 2nd of June, every penny you have earned will be used to pay for government spending through your taxes. Ouch! This is because the government pockets over 40% of our national income, so, today is `tax freedom day'.* At last! And, I'm not just talking about income tax on your earnings either. You could also be stung for VAT, stamp duty, inheritance tax, car tax, fuel tax and a whole host of other deductions. So, wouldn't it be great if you could reach your own tax freedom day early? Thankfully, this is easier than it sounds. Just follow these top ten tax-busting tips: Make the most of your personal tax allowance Everyone is entitled to a personal tax allowance, which is the amount you can earn during the tax year without having to pay any income tax. This tax year the allowance is £5,435** if you're under 65, while people aged over 65 are entitled to a higher allowance. Make sure your tax code is correct so you receive the tax-free amount you're entitled to. If you are married and have savings accounts (or other taxable assets), think about transferring them to your spouse if they don't pay tax or pay it at a lower rate than you. This can save tax or even reduce your bill to zero. If you're a non-taxpayer, remember to claim back any tax you paid on your savings. Invest in a pension Pension contributions attract tax relief, which means you'll get tax back on money you invest in your pension scheme. If you're a non-taxpayer or a basic-rate taxpayer, you'll get tax relief at 20%, which means you'll only need to invest £80 out of your own pocket for £100 to go into your pension (with £20 tax relief). If you're a higher-rate taxpayer, you'll enjoy tax relief at 40%, and you'll need to contribute just £60 of your own money for £100 to be invested in your pension. Pensions grow free of tax too. Can't be bad! Admittedly, you will have to pay tax on the income you receive from your pension when you retire - apart from a tax-free lump-sum - but it's still good to pay less tax now. And if you're a higher rate taxpayer now, you may only have to pay basic rate tax on your pension income when you retire, depending on your circumstances. Use your ISA allowance You can save or invest into an ISA and pay no income or capital gains tax. Each tax year you have a new ISA allowance, which is currently £7,200. You can invest the full amount in the stock market or save up to £3,600 in a Cash ISA and earn interest tax-free. Don't forget the allowance works on a `use it or lose it' basis, which can't be carried over to the new tax year. Use National Savings & Investments (NS&I) accounts You can invest up to £93,600 tax-free with NS&I this year. The treasury-backed savings bank offers premium bonds, cash ISAs, index-linked savings certificates and fixed interest savings certificates, all of which allow you to earn tax-free interest on your hard earned cash. Claim Tax Credits You'd be surprised how many millions are lost in unclaimed tax credits each year. There's a whole range of Tax Credits you could be entitled too. Low earners may qualify for Working Tax Credit, while those responsible for children could benefit from Child Tax Credit. Older people may be able to boost their income with the Pension Credit. Check the HMRC website for more information. Use your Capital Gains Tax allowance When you sell an asset, any profits you make are subject to Capital Gains Tax (CGT). Fortunately, you have an allowance of £9,600 this tax year which is CGT-free. It may make sense to dispose of assets, which are chargeable to CGT, over a series of tax years, to make the most of your exemption. Plan for Inheritance Tax If you have assets worth more than £312,000 (at current tax year rates) then you'll need to think about planning to reduce your Inheritance Tax (IHT) liability. There's a range of policies you can use to cut your IHT bill, but they can be pretty complex, so it's a good idea to seek professional advice. Oh, and don't forget to make a will. If you have children, save in a Child Trust Fund If you have a child born after 1st September 2002, you can save tax-free into a Child Trust Fund (CTF) on their behalf. CTFs get a head start from the government of £250 (or £500 for lower income families), which is topped-up again when the child reaches seven. You can save up to £1,200 extra each tax year too. Donate to charity using Gift Aid A donation made to charity through Gift Aid will benefit from tax relief. If you're a basic-rate taxpayer, Gift Aid can turn a £1 donation from you into £1.28 for the charity. If you're a higher-rate taxpayer, you can reclaim the extra tax you pay, to boost your donation even more. And finally, fill in your tax return -- on time! If you have the joys of filling in a self-assessment tax return, try your best to complete it accurately and don't -- whatever you do -- miss the deadline. Late tax returns trigger a £100 penalty, and the longer you leave it the heavier the penalties get. That rounds up my top ten tips for keeping the Chancellor's mitts off your money! More: Will You Be Richer This Tax Year? | The Budget: Winners And Losers*The date of tax freedom day is calculated every year by the Adam Smith Institute. The date may alter each tax year as various tax rates change.**The personal allowance will be raised this year to £6,035. Taxpayers will feel the benefit of this from September.