There are many areas of finance that people need to manage and plan in order to make the most out of their money. One of the most important areas, yet one which often causes a lot of confusion, is tax. So, what are a few tax-saving tips that could help you to save money and improve your financial situation? Read on for a few ideas.
Pay into a Pension
It is vital that people look ahead to the future in terms of retirement planning and paying into a pension is the most tax-efficient way that you can do this. The government will cover 20% of your contribution to encourage you to save more for the future, which is essentially free money for the future and a great way to build for your retirement. Additionally, auto-enrollment means that your employer must match contributions into a workplace pension and you will receive tax relief on your contributions.
Similarly, a stocks and shares ISA (S&S ISA) is another smart way to protect your cash from UK income and capital gains tax and is protected against future tax rises. Investing in an S&S ISA does pose risk as your investments can rise and fall in value, but if planning for the long-term and diversifying in an index fund then it can be an excellent way to build wealth and you can withdraw from an ISA tax free.
Enterprise Investment Scheme
Following this, if you like the idea of investing then the Enterprise Investment Scheme (EIS) could be a good option. This was established by the government in 1994 to encourage people to invest in UK SMEs and support the economy with the potential to claim 30% income tax relief on investments up to £1 million. Due to the fact that this involves investing in startups, it means that the potential for growth is high and capital gains are tax-free. If the investment results in a loss, you can claim up to 45% loss relief which can be offset against income at your marginal rate of tax.
Claim What You Can
It is also worthwhile for people to know what they can claim back tax on, especially now that so many people are working from home. You could claim back tax on your home expenses, such as your electricity bill, if it has gone up due to you working from home.
These are just a few ways that you can save money on tax and could make a big difference to your overall financial situation. Tax is an area that causes many people confusion, but it does not have to and if you are intelligent with tax then it presents new opportunities and could allow you to build towards a brighter financial future.