Tease the last from Tessa

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Fear of the taxman extends to the unlikeliest of places, as Archers' fans will know. Brian Aldridge has been more concerned with a tax demand than the fact that his daughter is to be an unmarried mother. John Andrew offers tips on how to avoid the same worry and minimise your tax bill in 1998.

None of us likes paying tax. Yet a survey a couple of years ago estimated that some 31 million people each pay on average about pounds 170 a year more than they need to - an annual total of pounds 5bn.

Not included in this figure was pounds 2m from one Elsie Bushen. When she signed her will on 14 February 1992, she joked that it was her Valentine to the Chancellor of the Exchequer. Few realised how literal her joke was: when she died three years later, it was revealed that she had left the sum to the Treasury to ease the national debt.

Although only a handful of us are eager to fill the Treasury's coffers, inertia inevitably means that we pay more than we need. Sometimes it is the simplest of things that are overlooked. For example, non-taxpayers may elect to receive interest on savings accounts gross rather than net of tax. This is a fact often overlooked by many pensioners. So, if you have elderly relatives on modest incomes, it is worthwhile getting them to check with their bank or building society to see if they should be receiving their interest gross of tax.

A simple way in which married couples can possibly reduce their joint liability to tax is by redistributing assets. Switching investments and savings from the partner who pays tax at a higher marginal rate than the other will bring savings.

The Government has announced its intentions to introduce an Independent Savings Account (ISA) on 6 April 1999. From that date the Tax Exempt Special Savings Accounts (Tessas) will be withdrawn, though existing ones will be allowed to run their course, and Personal Equity Plans (PEPs) will lose their exemption from Income and Capital Gains Tax (CGT). Although plans have not yet been finalised, currently it is proposed that up to pounds 5,000 a year may be placed into an ISA, subject to an overall limit of pounds 50,000.

Anyone who has a sum below that figure in a Tessa or PEPs - who has capital to invest - should consider taking advantage of these tax-efficient vehicles. That is because the Government has indicated that existing PEPs and maturing Tessas can be transferred to the new ISA from 6 April 1999.

Each adult UK resident may invest up to pounds 9,000 in PEPs in any one tax year. There are two opportunities to invest in PEPs before 6 April 1999. Every individual may have one Tessa, which is a five-year savings plan. Up to pounds 3,000 may be invested in the first year and up to pounds l,800 in each subsequent tax year (or less in the final year, subject to the overall pounds 6,000 limit), subject to an overall limit of pounds 9,000. Using current tax- efficient opportunities will help maximise opportunities offered by ISAs.

However, it is what has not revealed about future changes been that is more significant. Gordon Brown, the Chancellor, has indicated that CGT will be altered in the March Budget with the objective of rewarding long- term investment. How this will be done is not known. CGT is currently levied at an individual's highest marginal rate of tax. A flat rate may be introduced with discounts on a sliding scale the longer an asset has been held. That could have consequences for people contemplating disposing of assets, such as a business, and professional advice should be sought.

It is also known that Labour dislikes the current Potentially Exempt Transfer regime under which no tax is payable on most lifetime gifts - providing the donor survives for seven years after they are made. Perhaps alterations may involve complete abolition of this way of avoiding Inheritance Tax (IHT), with tax being paid as soon as the gift is made, or the seven year period being extended.

Although it is unlikely that any future changes would be retrospective, one cannot be sure. In his November Green Budget, the Chancellor announced that he hoped to publish legislation relating to tax avoidance in the summer. The changes are likely to have a significant impact on the current range of techniques currently used in IHT planning. It is currently possible to transfer assets into a discretionary trust without any immediate charge to CGT or IHT if the value of the assets is within the individual's nil rate band of pounds 215,000.

This practice may be restricted in the future. So anyone contemplating establishing a trust for the benefit of members of their family, or gifting assets, to reduce future tax liability, should consult their financial adviser sooner rather than later.

And do not let inertia rule - there are many other ways to be financially more efficient, such as monitoring your current account to avoid paying penalties for unauthorised overdrafts, or taking out annual travel insurance rather than for each trip.

How to squeeze more from '98

It is not just by saving tax that you can become financially more efficient. For example:

If you have a big credit card debt, see if you can save by taking advantage of an introductory offer from a rival company by switching the balance. Or repay it with a personal loan.

Look at mortgage transfer offers. However, penalty and legal fees could outweigh the savings.

Look at the way you spend. By paying for as much as you can by credit card, you could boost the benefits of the card provider's loyalty scheme.

If you face the odd liquidity crisis and dip into the red, remember that it is less expensive to arrange an overdraft than to go overdrawn without permission.

Cut down the time it takes to complete your next tax return. Resolve to keep financial papers in order.