TAKEN TO TAX?

With a new tax year getting underway this month, for some people this will be a time to get on top of their financial planning.

Here John Chew, a pension, tax and estate planning specialist at Canada Life highlights some common tax mistakes...

1. Not checking your tax code

The average taxpayer only checks their tax code once every two years, research from Canada Life indicates.

John cautions: “Those who are not on the right code may find themselves out of pocket. Overpaying means you should get a rebate.”

But underpaying means you may have to make up the shortfall. People who believe they may be due a refund can visit gov.ukclaim-tax-refund to find out more.

If they believe they owe tax but have not received a letter, they should contact HM Revenue and Customs (HMRC).

2. Breaching the personal allowance for savings

Rises in savings rates may mean some people are close to being pushed over the personal savings allowance.

While bank interest or interest on savings is taxable, the personal savings allowance means that the first £1,000 of interest earned is tax-free for basic rate taxpayers, and the first £500 is tax-free for higher-rate taxpayers.

The higher interest rate environment we’re now in may make ISAs a more attractive option, as they are ring-fenced from the taxman.

3. Being hit with pension tax bill

Over-55s can unlock their pension savings under the pension freedoms. Generally, the first 25% of cash taken will be tax-free but the remainder will be subject to tax. John suggests using free online calculators to help you work out the tax due on any withdrawals.

4. Not sharing the tax burden

Some couples may find they can reduce their tax bill under the Marriage Allowance.

It allows one person in the couple to transfer some of their personal tax allowance to their husband, wife or civil partner to reduce the overall amount of tax paid as a couple.

Avoid nasty tax surprises