Malcom Cuthbert, partner at Killik & Co, outlines the top ten ways to save tax

Use your personal allowance
The basic personal allowance of £6,475 is the amount of income most of us are entitled to in this tax year (2009/10).  It can be very tax efficient to transfer income producing assets from a 40 per cent tax payer to a non-working spouse or civil partner.

For example, a 40 per cent tax payer has savings valued at £100,000 which are yielding 5 per cent, so generating £5,000 on which they are paying £2,000 in tax. By transferring this to their non-working spouse they could save £2,000 in income tax.

There is no tax on gifts between spouses or civil partners. If you are over 65 make sure that you claim your personal allowance of £9,490 (2009/10)
 
Use your Capital Gains Tax allowance
Individuals have a Capital Gains Tax (CGT) allowance of £10,100 in 2009/10. If a couple is selling assets it makes sense to make use of both individuals allowance.

In the same way as in the example above assets can be transferred from one spouse to another without tax just before a sale of assets. For example, a 40 per cent taxpayer has made a gain of £20,200 in their share portfolio. They transfer 50 per cent of the share portfolio to their spouse before they sell it and therefore save £1818 in CGT.
 
Save income tax on your mortgage interest payments
Most of us pay interest on our mortgage out of taxed income –usually at 20 per cent or 40 per cent.

It is possible to take out an offset mortgage. This offsets savings against the mortgage debt so instead of paying 20 per cent or 40 per cent income tax on your savings you pay no income tax within the offset mortgage. By “overpaying” your mortgage you can also shorten the term.
 
Pay no income tax on your savings income
If you have very low earnings (below £6,475pa) then you can ask for the interest to be paid to you without the normal 20 per cent being automatically deducted. Form R85 has to be completed.
 
If you work some part of a year claim back overpaid income tax
If you have a career break or spend time travelling make sure that you claim back overpaid tax. So, for example, you earn £60,000 pa and stop working half way through the tax year.  You will have been taxed through PAYE as if you were going to work all year.  Make sure that you claim this overpaid tax back. The taxman won’t necessarily tell you.
 
Take out an ISA
There is no CGT on any gains made within a stocks and shares ISA and there is no income tax paid on any money paid out from it. Not only is there no income tax but any income you take out will have no impact on age related tax allowances.
 
Pay into a pension
There are very few investments where the Government pays money into an investment for you and a pension is one of the best. You will receive either 20 per cent income tax relief or 40 per cent income tax relief depending on how much you earn over the course of a tax year.

Even more efficient is salary sacrifice or bonus waiver where you sacrifice part of your salary or waive some or all of your bonus and your employer puts the entire amount plus saved employer’s National Insurance Contributions into a pension plan for you.

Since the 22 April budget high earners (those earning in excess of £150,000 pa) have been circumscribed in the amounts that they can contribute into their pension (unless they were making regular payments before that date) and still receive higher rate tax relief. However it is possible to use Gift Aid to reduce earnings below the crucial £150,000pa threshold.
 
Use VCT’s, EIS’s and qualifying life polices to reduce your income tax bills and to defer CGT
Venture Capital Trusts offer 30 per cent income tax relief plus no income tax on dividends and no CGT when they are sold.  EIS’s offer income tax relief of 20 per cent plus possible deferral of CGT liability. After two years EIS’s are exempt from IHT.

Qualifying Life Polices are free of CGT and income tax after ten years or 75 per cent of the term.
 
Reduce Inheritance Tax liability by paying away monies from ‘normal’ income
IHT remains at 40 per cent on the excess over £325,000 (in the 2009/10 tax year).
It is possible to gift £3,000 pa per donor but it is also possible to gift surplus income when it is ‘normal’ and regular.
 
Reduce your income tax liability on any property income
You can claim up to £4,250 in 2009/10 under the rent a room allowance. If income is more than this then make sure that you claim all other allowances in order to reduce your taxable profits. Both interest on a property loan and any insurance costs are allowable. So too is furniture on either a replacement basis or at 10 per cent of the value of the annual rent.