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What is tax planning?
If you think you are paying too much tax and want to reduce your tax burden, you can do so legally.
Tax rules can be confusing and complex, but understanding them and using them to your advantage can reduce your tax amount. The tax system is filled with government-provided reliefs, exemptions, and deductions that can be reasonably used to reduce your tax debt. This can save you significant money every fiscal year.
This is known as tax planning.
Tax planning is the legal process of analyzing and organizing your financial condition in order to reduce your tax burden and maximize tax benefits. It enables you to get the most out of the government’s tax allowances, deductions and breaks. It enables tax savings in compliance with all legal obligations and regulations.
To develop tax planning strategies to reduce your tax debt, you can turn to a professional tax advisor or accountant.
Tax Planning Facts You Probably Didn’t Know About:
One of the most important aspects of financial planning is understanding what tax planning is. It is a method of analyzing your own financial situation from the point of view of tax efficiency in order to invest and use resources as efficiently as possible.
An effective tax planning strategy should include a variety of savings alternatives, financial products, and retirement plans that can maximize tax breaks and allowances while minimizing the amount of money spent on taxes and fees. Hence, it is important to understand tax planning in order to develop strategies before taking your next financial move.
Here are a few facts you probably didn’t know about tax planning that can help you save money:
- Personal savings allowance
As of April 6, 2016, all property taxpayers are entitled to a £ 1,000 Personal Savings Allowance (PSA). With the personal savings subsidy, you do not have to pay tax on your savings interest and banks and building societies do not deduct any taxes from your account interest. This means that you can save up to € 1,000 tax-free.
If you are a higher tax payer, you can earn up to £ 500 on PSA.
- HMRC tax code
You should check your HMRC tax code every year to make sure you have paid the correct amount of tax. Your tax number tells your employer how much of your wages is tax-free, and the rest is taxable.
When your tax office sends you a notification about the calculation of the code, check again whether you have received the relevant allowances and whether the pension or other income shown is correct or not. If you use the wrong tax code, you can get a refund for previous years and pay less tax in the coming months.
- Rent a room
You can earn an additional £ 7,500 tax free by renting out a room in your home. However, there are certain limitations. You can only rent rooms in your home. It does not apply to apartments that have been converted into independent apartments.
- Blind money
If you are registered blind or severely visually impaired and unable to do any work that requires eyesight, you will receive an additional allowance of £ 2,390. After registering as a blind person with your local authority, you can apply for a blind allowance from HMRC as it is not added by yourself.
- Marriage allowance
If you or your partner were born after April 6, 1935, you may be eligible for marriage allowance based on your income. If your income or that of your partner is below the personal allowance, the lower-income partner can transfer his unused personal allowance to the higher-income partner.
You can also save on taxes by transferring investments to your partner who pays a lower tax rate. However, the investments must be real gifts, not just gifts in the name.
- Reclaiming Overpaid Taxes
If you are in any of the following situations, you can usually claim tax back within four years of the end of the tax year:
- Too much tax has been deducted from your income.
- You overpaid taxes because you did not apply for any tax breaks or tax allowances.
- Change of working hours
If your working hours change, you will need to notify HMRC so that your tax code is adjusted and you get the correct code. When you have a job and a pension, you need to be careful because each source of income has a code associated with it. If you are careful you will avoid paying the wrong amount of tax and being fined.
- Pension contributions
Pension contributions benefit both employees and employers as they are tax deductible. Employee pension contributions are tax-free for the company. They are also exempted to a limited extent from income tax and social security for the employee.
To get tax breaks, there are many methods that you can use to contribute to your pension, such as When choosing an annuity provider, small business owners should consider what is best for them and their business.
Sophia is a full-time financial journalist at experlu. She is a passionate blogger and loves to share her knowledge on various topics. Content created by Experlu – loved, shared and found on high-profile platforms across the Internet.