Could you be making any of these common tax mistakes?

2024-04-11 -

A pensions and tax expert highlights the important rules you don’t want to overlook. With a new tax year getting under way from Saturday, for some people this will be a time to get on top of their financial planning. John Chew highlights five common tax errors to watch out for…

1 Not understanding your tax code

Tax codes are used by employers or pension providers to work out how much income tax to take. The average taxpayer only checks their tax code once every two years.

If it’s wrong, you may end up contributing less or more than you’re supposed to. If you believe you’re owed a tax rebate, but have not received a letter, 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. Personal savings allowance means – the first £1,000 of interest earned is tax-free for basic rate taxpayers

– 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 money held in them is ring-fenced from the taxman for as long as it remains in its ISA “wrapper”.

3 Being hit with a 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.

● Free online calculators can 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.