Simple and legitimate ways of cutting tax bill

he will be become entitled to a £15,000 bonus.

Accepting it would see take home pay rise by only £5,700. But sacrificing the bonus and juggling allowances can instead generate a £17,070 pension pot at no extra cost to Julian’s employer.

Turning to the Child Benefit Tax Charge, if you or your partner has an income over the £50,000 threshold and you accept child benefit, you will be required to pay what is known as the high income child benefit charge.

It amounts to one per cent of the child benefit paid for every £100 of income between £50,000 and £60,000 earned.

Let’s say Mr and Mrs E have two children under the age of 16. Mrs E claims the child benefit. Both are earning £50,000 but, after inheriting a share portfolio of £100,000, Mrs E gets an extra £5,000 in gross dividend income per year.

If Mrs E makes a net pension contribution of £4,000, then this would be grossed up to £5,000. This £5,000 is deducted from her taxable income leaving an adjusted net income of £50,000. This would mean that there is no Child Benefit Tax Charge to pay. And, as a further bonus, because Mrs E is a higher rate taxpayer her basic rate tax band would be extended by the £5,000 gross pension contribution, saving her a further £1,000 in income tax.

A warning though … if either you or your partner earn over £60,000, the tax will amount to your entire child benefit entitlement. So, you are better off declining child benefit in the first place.

Moving on to the Marriage Allowance – and a lot of people don’t do this – married couples and civil partners can transfer £1,100 of personal allowance from the lower earning partner to the higher earner, saving them up to £220 tax. But it is only available if the higher earner is a 20 per cent taxpayer; no transfer is possible if they are at the 40 per cent level.

With Dividend Allowance and Personal Savings Allowance, assets can be transferred between spouses (married or civil partners) with no capital gains tax. This may provide additional allowances for a couple.

The first £5,000 you receive in dividends from investments is tax free. Basic rate taxpayers pay 7.5 per cent tax on dividends they receive above the threshold, higher rate taxpayers pay 32.5 per cent and additional rate taxpayers 38.1 per cent. If you are a basic rate taxpayer, the first £1,000 of interest you receive from savings is tax free. If you are a higher rate taxpayer, the threshold is £500. It is only if your savings income exceeds the allowance that any tax is due.

Finally, check your investment portfolio – is the risk profile appropriate and are charges competitive?

Life cover – are you paying over the odds?

Mortgages – are you being charged too much interest?

All these things matter if you want to reducing outgoings and cut tax. Contact your financial adviser who can sort things out accordingly. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email: tilaw@meritofs.com