Dodge out of the fiscal firing line

Many pensioners feel they are being persecuted by the Inland Revenue, but there are legal ways in which we can all cut our bills
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The Independent Online
There are a number of tax breaks that can ease the burden on taxpayers, particularly if you receive your pay before tax. Little-known dodges, which are perfectly legal, include:

Venture capital trusts. Subscribe up to pounds 100,000 each year for new shares issued by a trust and obtain 20 per cent tax relief. In addition, any dividends paid are not taxable and there is no capital gains tax when the shares are sold.

Friendly societies. You can save up to pounds 270 per year in a friendly society bond and receive the interest tax free. It is worth checking the charges because the low investment amounts can mean that the tax relief is sometimes worth less than the charges.

Endowment policies. Despite the bad press given to these policies, they can still represent a tax shelter for higher rate taxpayers.

Single premium bonds. Like endowment policies, these are sold by insurance companies. You invest a lump sum and can withdraw up to 5 per cent a year without paying any tax. When the policy finally matures the withdrawals will be taken into account when calculating the gain, but if you are resident overseas, you may escape tax altogether.

Let property. Most second homes are subject to capital gains tax when you sell them. But if you have let your house at a commercial rent, up to pounds 40,000 of your gain escapes tax. You may be able to reduce the Revenue's share still further if you lived in the property as your main residence before you let it.

Rent a room scheme. You can let a room in your house and receive the income tax free, as long as you receive no more than pounds 4,250 a year.

Foreign domicile. If you regard yourself as belonging in another country - perhaps because you or your parents were born there, or because you have bought a house abroad and intend to end your days on its sunny beaches, you may be able to claim an overseas domicile. This means that you can hold assets offshore, such as bank accounts or property, and not pay UK tax on income earned on them, such as rent or interest.

Business mileage. If your car's engine size is 2000cc or more, you can deduct 63p from your earnings for each mile you drive on business. This falls to 36p after 4,000 miles. If your car has a smaller engine, the amount is reduced. The exact amounts for each car size can be found by asking the Revenue for details of the fixed-profit car scheme. If you have claimed business mileage from your employer, you can deduct the difference from your taxable earnings when you fill in your tax return. When you drive from home directly to a customer, many employers only allow you to claim mileage as if you had left from the office; Revenue rules allow you to claim from your home.

Bicycles. Since the last Budget, business mileage rules also apply to bicycles. People who cycle to visit their clients can deduct 12p per mile from their earnings.

If you use your own bicycle, part of the purchase cost can be claimed as a tax relief.

Anne Redston is a chartered tax adviser at Ernst & Young.

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