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We’ll show you which products are the most tax efficient so you can make the most of your savings and investments, and minimise how much tax you pay.
All of the capital gains, interest, and dividend income from ISAs are completely tax free.
You cannot contribute more than £20,000 to your ISAs, but you can split this allowance between multiple types of ISAs (cash, stocks, etc.) so you can diversify and reduce your risk.
Investing in a private pension gives you many tax advantages:
Use this pension tax relief calculator to see how much tax relief you can get.
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HMRC will basically give you back the tax that you paid on the income that you used for your pension contribution.
In your case you earned £49,000 and contributed £1,000 to your pension.
You get £250
Your pension provider will automatically get this for you and add it to your pension pot.
Your pension pot will now be worth £1,250.
You can pay up to £2,880 each tax year into your child’s pension and HMRC will automatically add 25% to this as a tax relief.
When your child turns 18 they simply become the owner of the pension.
The Enterprise Investment Scheme is an incentive set up by UK government to encourage individuals to invest up in small businesses.
It offers quite a few tax reliefs to investors:
You can invest up to £1,000,000 per tax year.
SEIS is almost identical to EIS, except for two things:
A Venture Capital Trust (VCT) is basically a special kind of investment fund:
VCTs can also help you save on tax:
Unlike EIS/SEIS, if your VCT investment makes a loss, you can’t use this to reduce your CGT bill from other investments.
If you want to invest in stocks but you’ve reached your ISA allowance, choosing shares of companies that you will hold on to for a long time and which will pay dividends yearly might be a better idea.
You can use this dividend tax calculator to see how much tax you need to pay on the rest.
You can either call HMRC on 0300 200 3300 to take this tax from your salary or pension, or include it on your Self Assessment tax return.
Tax on dividends is calculated pretty much the same way as tax on any other income.
The biggest difference is the tax rates – instead of the usual 20%, 40%, 45% (depending on your tax band), you’ll be taxed at 7.5%, 32.5%, and 38.1%.
The numbers look strange but the reason is simple: the company paying you those dividends already paid corporate tax, so you’re paying the difference.
This is mostly relevant if you own your company and you’re trying to decide the best way to pay yourself: dividends or salary. Keep in mind that if you pay from your salary, you also need to pay National Insurance.
In your case you earned £3,000 in dividends and £29,000 in other income (this can be salary, rent, etc.).
You don’t pay any dividend tax on the first £2,000 you make in dividends.
You pay 7.5% on the next £1,000
Call HMRC on 0300 200 3300 so they can change your tax code – you’ll pay the dividend tax through your salary or pension.
If you normally file a tax return, you can also pay dividend tax through it.
You don’t have to pay Capital Gains Tax on:
Also, if you make a loss when you sell an asset (also called a “capital loss“), you might be able to deduct this from other capital gains and reduce your CGT bill.
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