Top ten tips: Becoming more tax-efficient

1 Use your allowance

The individual savings account (Isa) limit for 2012-13 rises to £11,280, of which a maximum of £5,640 can go into a cash Isa. The full amount can go into a stocks and shares Isa, or you can mix the two. The junior Isa limit remains at £3,600.

Isa savings are exempt from tax, which means that many families’ regular savings can be held in a tax-efficient environment.

2 High-earner pensions

The Chancellor announced that the additional rate of income tax for those earning above £150,000 would be cut from 50 to 45 per cent from April 2013. Therefore 50 per cent tax payers should utilise the carry-forward pension rules in 2012-13 to increase the maximum amount of tax-relieved pension savings above £50,000 before it disappears.

3 Avoid higher tax rates

The personal allowance for under-65s has been increased to £8,105 (and is due to reach £9,205 next April). The basic rate limit was yesterday cut to £34,370 for 2012-13, and the higher rate threshold remains at £42,475. These measures will draw more taxpayers into the higher rate band after allowing for inflation. So if your income is close to the higher rate threshold then making a pension contribution to extend the basic rate band will reduce the possibility of paying higher rate tax on your income.

4 Working longer?

In future, the state pension age will rise in line with longevity statistics, at the same time as bringing forward the increase to 67 from 2026. Those who plan to retire before their new state pension age may wish to consider the future retirement income shortfall this creates or plan to work until their new SPA to avoid this shortfall.

5 Keep your child benefit

From January 2013, child benefit was set to be withdrawn completely for families with at least one higher rate taxpayer. The Chancellor has modified this so it won’t affect anyone with an income of less than £50,000, with those earning above £60,000 losing all their benefit.

For the purposes of calculating the tax on child benefit, income means “adjusted net income”. This means that additional pension contributions, salary exchange or charitable donations may help to preserve child benefit for those with incomes above £50,000 in 2012-13.

6 Disposable gains

You can realise gains of up to £10,600 in the 2012-13 tax year without paying capital gains tax (CGT). This exemption has been frozen from the last tax year, so again utilise this if possible.

7 Smart switching

If you have a portfolio of investments with some gains, then consider crystallising some of these gains and immediately re-investing them back into an Isa if you have not already used your Isa allowance for the tax year. Keep any gains within the CGT allowance of £10,600.

8 Boost your pension

If you don’t have a pension, then start making contributions into either your employer’s pension scheme or a personal pension plan. Contributions attract 20 per cent tax relief for basic rate and non-taxpayers, with higher rate taxpayers being able to claim a further 20 per cent or, in some cases, 25 per cent relief through their tax return.

9 Transfer window

Transferring any income-bearing assets to lower-earning spouses can help to share the tax burden. This is particularly relevant if your spouse does not use his or her personal allowance.

10 Start a business – or invest in one

The new Seed Investment Scheme (SEIS) aims to attract investment into start-up firms by offering generous tax incentives. It offers 50 per cent income tax relief for individuals investing in qualifying companies and also CGT benefits. The annual investment limit for individuals is £100,000 and the cumulative investment limit into one company is £150,000.