So whose cash is it, anyway?

Tax rules favour the saver, yet the Revenue still takes our money. Here and on pages 18 to 20 we show how to plug the leaks

We All complain about the amount the taxman takes out of our wages, salaries and benefits. The same is true of the interest and dividends paid to millions of savers and investors.

Yet many of us fail to manage our savings in the most tax-efficient manner; we don't even exploit the tax allowances that can be legitimately claimed. With the advent of self-assessment, this situation could become even worse.

So perhaps we should stop moaning for a moment and ask the question: am I saving for my benefit - or the taxman's?

Before you start to pay for professional advice - from an accountant and, perhaps, an independent financial adviser - here are some of the areas to consider in organising your tax affairs.

Marriage and tax

Nowadays, husband and wife can elect to be taxed singly on their earnings, with both eligible for the single person's allowance. If the wife does not have any earnings then the husband can claim the married allowance. While this is only pounds 1,790 a year, on which tax is allowed at the special 15 per cent rate, it is still worth having.

The old differences in taxation between earned and unearned income have long gone. Before paying tax, a person has to earn over pounds 3,765 a year. If your husband or wife has minimal or no earnings, it is worth while putting investments and deposits in their name. If they do not pay tax, they can have their investment income paid gross up to the threshold.

Just ask a building society or bank for the form that has to be signed to ensure that interest can be paid gross. The Inland Revenue says that non-taxpayers fail to reclaim around pounds 500m a year that they need not have paid, much of this on building society deposits.

Pensions

Depending on age, as much as 25 per cent of income can be put into a company or personal pension plan and offset at the individual's top rate of tax.

Anyone with a personal pension can make use of tax allowances on authorised contributions for the previous seven years if they failed to invest the full amount. So a top-rate taxpayer who earns a large bonus, for example, can invest it in a personal pension scheme and mop unused allowances from previous years at his or her highest rate of tax.

Long-term savings

Personal equity plans (PEPs) and tax-exempt special savings accounts (Tessas) have become topics for everyday conversation because they are both simple ways to invest for the future without paying tax.

In recent years, the Government has tried to encourage long-term investment. Anyone prepared to deposit money for five years in a Tessa will receive a much more attractive gross rate of interest than with a conventional deposit.

Now we are in a period of low inflation, the rate of interest paid on conventional deposits with building societies and banks is under 2.5 per cent. If the money is invested for a year with the Halifax, for example, the interest paid is still only 5.75 per cent gross. With a Tessa, the interest is 5.4 per cent tax free. Anyone reinvesting the proceeds - up to pounds 9,000 - from a previous Tessa will receive a fixed rate of 6.77 per cent net.

PEPs are one of the best tax- free vehicles and can be used as part of an efficient retirement plan. Up to pounds 6,000 a year can be invested in UK shares or unit trusts, on a lump sum or regular investment basis, through a variety of PEP schemes - or pounds 1,500 if the investment is largely overseas. A further pounds 3,000 can be invested in a single company PEP.

A PEP's'main attraction is that if it is held for a year or more, all the income and capital gains are tax free. In addition, husband and wife can invest the full amount individually.

Gilts and National Savings

Apart from the Pensioners Bond that was introduced recently, a variety of investments offered by National Savings are tax free if held to maturity. Quite often, these offer better rates of interest than long-term fixed- interest investments from banks and building societies. Also, investments in gilts are free of capital gains tax if held for longer than a year.

Insurance

People aged 60 or more can now receive tax relief on premiums for health insurance. Although the rates can seem expensive, the problems in the National Health Service in many parts of the country may make this seem worthwhile.

Permanent health insurance pays out an income in the case of long-term illness or accident. While medical insurance such as that offered by Bupa is a taxable benefit, the taxman has left permanent health insurance alone. Try to persuade your employer to introduce a group scheme; the premiums are less than the individual would pay and they are tax free.

Inheritance tax

One of the reasons for amassing wealth is to pass on the benefits to heirs. An estate worth up to pounds 200,000 is free of inheritance tax. Anything above this, however, is taxed at 40 per cent.

With widespread insurance cover, resurgent house prices and death-in- service benefits of up to four times' salary offered by some firms, an increasing proportion of the working population could find their estates liable to inheritance tax.

There are various ways of minimising the impact of inheritance tax, including making regular gifts and writing insurance policies in trust. Anyone who thinks this tax could cause a problem is well advised to consult an independent financial adviser.

The above are just some of the ways to use the tax system efficiently. Self-employed people working from home should use an accountant to ensure they are claiming everything they are entitled to.

Always remember that while tax evasion is a crime, tax avoidance is using the system efficiently.

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn