Optimise your tax: use your reliefs and allowances

Britons are likely to waste £4.6bn in 2016 by not taking advantage of tax reliefs and allowances created for them by the government. Three in five taxpayers admit they haven’t done anything to reduce their tax waste in the last year.* £1.9bn tax relief is likely to be wasted in the UK in 2016 by not utilising pensions. 47%* of savers think they are already paying as little tax as they could.* We look at what you can do to optimise the amount of tax you pay.

Your savings

You could keep more of your savings in an Individual Savings Account (ISA). In the 2016/17 tax year you can save as much as £15,240 into an ISA and then take any growth and income tax-free.

Your investments

Other than gains on residential property, you’ll pay capital gains tax at 10% on any gains that fall within any unused basic-rate tax band you have. And you’ll pay it at 20% on any gains that fall outside your basic-rate tax band. However, you only pay tax on the amount of any gain above the capital gains tax exemption. For 2016/17 this is £11,100.

You can sell any assets you have that are not in an ISA or other tax-free wrapper for a gain up to the annual capital gains tax exemption (£11,100 in 2016/2017) without having to pay tax (in that tax year) – use it or lose it! Please remember if you’re married or in a civil partnership, spouses and civil partners are treated as separate individuals so each has their own annual exemption.

Your retirement plan

Pensions can be the most tax-efficient way to save. For example, a basic-rate taxpayer only has to pay in £800 to have £1,000 invested in their pension pot. You should get tax relief on pension contributions you make. This is limited to the higher of £3,600 or 100% of your relevant earnings capped at £40,000 before tax charges may apply. This £40,000 is known is your annual allowance. Your employer will also make contributions on your behalf. Whilst you will not receive tax relief on their contributions, what they contribute will count towards your annual allowance.

It may be possible to use up any unused allowance you have from the previous three years. This is a complicated area so it’s important that you speak to your financial adviser about it.

Your estate: the total value of what you own

There is a lot you can do not only to make sure that your estate (the total value of everything you own) goes to who you want, but also to minimise any inheritance tax that might be payable.

Inheritance tax is paid at a rate of 40% on the value of your estate above your nil-rate band. The nil rate band for an individual in 2016/17 is £325,000. Ways of reducing the amount of inheritance tax payable include:

• Making gifts

• Using trusts

• Leaving gifts to charity. You should seek professional advice to ensure you make the right decision at the right time.Sources:

 * unbiased.co.uk ** National Statistics – HMRC Tax and NIC receipts, May 2016.

Ways of optimising the tax you pay: 

• Make sure you use as much of your ISA allowance as possible

• Take advantage of your capital gains tax exemption

• Make the most of the tax relief you get when making pension contributions

• Reduce the value of your estate to reduce inheritance tax that might be payable.

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Find out more

If you would like to find out how you may be able to optimise the amount of tax you pay Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.


Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.

The information is based on our understanding, as at May 2016, of current taxation, legislation and HM Revenue & Customs practice, all of which are liable to change without notice.