Still working for the Taxman?

The Adam Smith Institute calls it Tax Freedom Day, the day in the year when we finally stop earning to pay the tax man and start earning money for ourselves. This year, that day fell on 30 May 2011, ten days later than it was in the mid 1990s and, thanks to the rise in VAT designed to reduce the UK’s debt burden, three days later than last year.

The fact that nearly half your income is being taken as tax might come as a bit of a shock – particularly given that basic rate tax is only 20%. This does not, however, account for the impact of VAT and National Insurance which add to the Government take but are rarely considered in the same vein.

Reducing the burden

If you are concerned about the amount you are paying in tax, there are things you can do with your money to at least reduce some of the burden. For example:

§  Invest money in a pension: not only will this help secure your retirement but the Government rebates the tax you would otherwise pay on your earnings if your redirect them into a pension.

§  Use your ISA allowance: when you are investing money for longer term objectives, using the tax efficient opportunities available could save you a significant amount.

§  Remember you have a CGT allowance: if you invest larger amounts in growth investments, utilising your annual Capital Gains Tax allowance will also save you money.

§  Plan your inheritance: whilst it might not save you money, planning your estate to minimise the impact of inheritance tax could help reduce the impact on your heirs.

For advice on tax planning, contact Chris Holland on 0114 2802830 or chrisholland@ecsbrokers.com .