Many people are at risk of leaving their loved ones with unexpected tax bills because they have failed to do any financial planning.
Inheritance tax is often called a “voluntary tax” – as most people can arrange their affairs so that they avoid the levy imposed on anyone who leaves taxable assets worth more than £325,000 (or £650,000 for a married couple or civil partners who don’t leave anything to anyone else).
Inheritance tax can quite simply be avoided by making use of the many exemptions, including bequests to a spouse, annual allowance, small gifts allowance, regular gifts out of income allowance and potentially exempt transfers – gifts of any amount that become tax-free as long as you live seven years after making them.
But what other taxes can you legally and practically avoid?
Of course, you can’t avoid ALL taxes, and nor should you, because if you and everyone else did there would be no schools or roads, hospitals or pensions or many other things that our taxes go towards financing.
1. Income tax
Make sure you use all your income tax allowances, such as by saving in an individual savings account (ISA), or transferring savings to a partner who does not pay tax, or pays at a lower rate than you do, so they pay as little tax a possible on the interest and dividends.
Will you still get taxed when you retire?
2. Capital gains tax
Avoid CGT by holding assets with your spouse or civil partner, so that both parties' annual CGT allowances can be used when disposals are made.
3. Stamp duty land tax
Avoid SDLT by buying property below the various thresholds at which the rates go up. For example, you could buy a lower value property and do it up yourself, saving tax compared with buying a more expensive home that is in perfect order.
A guide to stamp duty.
4. Value-added tax
You can avoid VAT on food by buying as many fresh ingredients as you can. If you must buy processed food, know which products have VAT charged on them and which don’t.
For instance, eat cakes instead of chocolate biscuits, drink milk rather than milkshake (the flavouring mix is VAT-able when purchased separately), and make your own fruit drinks instead of buying smoothies or even cartons of fruit juice.
5. Vehicle excise duty
Choose a car that emits 100g/km of CO2 so it falls into road tax band A, with no road tax to pay. Options include cars such as the Suzuki Alto 1.0 SZ, the Kia Picanto 1.0 1 r and the Citroen C1 1.0i VT.
Read about the new car tax rules.
6. Tax on company dividends
Invest in gilts and bonds rather than shares in listed companies and avoid being unable, even if you are a non-taxpayer, to reclaim the 10% tax that is treated as having been paid on company dividends.
* Read Annie Shaw's money articles every month in Saga Magazine.