FOOL'S EYE VIEW
Eight More Ways To Beat The Taxman

By Alison Hunt (TMFAlly)
March 15, 2005

I think we can safely say that taxes are one of the things we hate paying for the most. They're necessary but unfortunately swallow up a large proportion of our income.

But with billions being wasted in the UK each year due to most of us failing to put any tax planning into place, there is clearly a lot of scope for improvement!

If you would like to hang onto more of your money, follow these tips (and these ten tips that preceded them) and you'll keep more of your cash away from the taxman's greedy grasp!

1. Rent a Room

Did you know that you can take in a lodger under the Government's Rent-a-Room scheme and collect rent of £4,250 a year without having to pay tax on the income?

You need to agree this with your mortgage lender and insurance company, and check that it doesn't unfavourably affect any benefits you receive, but renting a room out can prove to be an effective way to earn tax-free income.

2. Buy To Let

The gains made on a property that is your main residence are tax free. The gains made on a Buy to Let property however are subject to capital gains tax (CGT).

But if you were to purchase a second property and make it your main residence, you can let out your existing home - which is now classed as your rental property. When you come to sell the rental property, any profits are exempt from CGT, not only for the period during which it was your main residence, but also for three years after you moved out. (You can find out exactly how this works in this article.)

So if you sold the rental property within the first 3 years you could benefit from the rental income, and then sell without being stung for CGT. And, if you sold after these three years you don't have to pay tax on either the first £40,000 'letting allowance' or an amount equal to the exempt main residence fraction, whichever is the lower. If, on the other hand you had rented out the second property bought as a typical Buy to Let, all profits made would be subject to CGT (at 40%)!

So, you can potentially keep thousands of pounds away from the taxman!

3. Season Tickets

Part of the Government's Green Travel policy to reduce the number of cars on the road is to encourage the use of public transport.

Participating companies offer their staff the option of an interest-free loan to pay for their season ticket for the year. This handily spreads out the cost of your annual season ticket over ten or more months, allowing you to take advantage of reduced cost travel without having to find the money all at once. You will also not have to pay tax or NICS on that loan, as long as it is less than £5,000 and you repay it in full.

4. Cyclists

If you'd like to cycle to work but you don't have a bike, you can benefit from the Green Travel Policy too. Employers can loan employees the money to purchase bikes and cycling equipment – free of tax and NICs! And as long as the cycle is used mainly for commuting, you can use it for leisure too. It's a win-win situation for the employer too as it doesn't have to pay tax or NICs on your loan either – and it can result in you saving over 50% of the purchase price of your bike.

In addition to this, if you use your 'work bike' for business travel too, you can claim mileage tax and NICs free too, up to the 'approved mileage allowance payments' (AMAPs) limit, currently calculated on the basis of 20p for every business mile travelled.

Even those whose employers don't pay a mileage allowance (or pay less than the AMAP amount) can get tax relief (known as 'mileage allowance relief') on the difference between the approved amount and the amount actually received.

And, should your company hold 'Cycle to Work' days to actively promote cycling over driving, it can provide refreshments or a meal for all participants free of tax and NICs.

5. Computing

Do you need a new home computer, but can't really afford one at the moment? The Home Computing Initiative (HCI) is a tax break that could be just the thing to help you out.

Under the Governments HCI scheme to improve and enhance workplace skills, employers can provide tax-free loans for employees to purchase home computing equipment. Again, as for season tickets and cycles, the loan is treated as a reduction in gross salary – so you don't have to pay the tax or NICs, and neither does your employer.

In fact, the DTI believes that a basic rate tax payer could save up to 33% on the price of his computer equipment (22% income tax plus 11% NICs) and a higher rate taxpayer 41% (40% tax and 1% NICs). Most organisations, large or small are eligible, so why not have a word with your HR department and see if your company are taking part in the HCI scheme?

6. Charity

You can increase the sum you donate to the charity of your choice by using Gift Aid, which will boost your donation by allowing the charity to claim back the income tax you've already paid. A donation of £100 becomes £128.20 – and a higher rate taxpayer can claim back another 18% via his tax return – meaning a total donation of £128.20 has effectively cost only £76.92!

An even easier way to pay is to set up Payroll Giving – which takes your donation from your gross salary directly.

7. Co-own Your Assets

If you are married, with one spouse a higher-rate tax payer and the other a lower or non-tax payer, you could take advantage of this by co-owning assets.

Say a couple were to get married; the husband is a higher rate taxpayer and the wife a non-taxpayer. If the husband were to put his savings account containing £10,000 into joint names, the interest would automatically be taxed under the 50:50 rule. So each partner would be taxed as if they held £5,000 each.

In an account paying 5% interest, the couple would be £100 better off (as they save 40% tax on the £5,000 deemed to belong to the wife). This is an alternative to the ninth tip in this article, which has the whole £10,000 transferred to the wife. In the co-owned example, less tax is saved but a joint account requiring both signatures for withdrawal provides a little more security.

8. Tax Credits

Last but not least, are you claiming all the tax credits you can? Did you know that a working couple can earn up to £66,000 in the first year of their child's life and still get child tax credits? Around nine out of ten families qualify for some help – have a look at the Inland Revenue website to see if you do.

And if your company offers childcare vouchers in return for a sacrifice of salary, consider signing up - you could effectively pay for some of your childcare tax and NICs free!

So, follow these tips and you could either save, or claw back some of your tax from the taxman!

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