If you really want to start saving the tax pennies, what are you having for lunch ? VAT is charged on pre-packed food like crisps, chocolate and drinks, any hot food, and on anything you eat in. On the other hand cold sandwiches and other takeaway food are zero-rated, so choosing these will mean a small saving. Before you say we are getting a bit desperate here consider this. If you buy lunch for a fiver, five days a week, there’s a saving of 87p a day to be had, £4.37 a week or, for a 48 week working year, £210.
On to the bigger fish, with 40% charged on anything over the inheritance tax nil-rate band (£325,000), it makes sense spend time ensuring you avoid leaving an IHT bill. It's easier for married couples as they can take advantage of the transferable nil-rate band, with the widow or widower being able to carry forward any of their spouse's unused nil-rate band to use when they die, effectively a nil-rate band of £650,000.
You can reduce your liability by making gifts (remember to keep enough to live on !), these include gifts worth up to £3,000 in each tax year; as many gifts of up to £250 a year as you like; wedding gifts (£5,000 for children, £2,500 for grandchildren and £1,000 for anyone else); gifts to charities, museums or UK political parties; and gifts out of your income.
Gifts out of income is often overlooked. But, if you give the gift on a regular basis, and by doing so you don't affect your standard of living, you can give away as much as you like and it's immediately outside your estate.
If you have a fair idea of the likely future liability, another route is to cover a future liability is by taking out life insurance to ensure there's money available to pay the bill. If you do, or you have any other life policies in place, it is essential that you write it in trust. If you don’t you are only increasing the liability and paying insurance premiums for the privilege ! Arranging a trust is easy, any competent IFA should be able to help.
And finally, Capital Gains Tax. If you make a profit the taxman wants his share, charging capital gains tax (CGT) at 18% on any profits above £10,100 in 2010/11. The easiest route to negate this tax is to use your own CGT allowance by selling assets with profit up to your allowance each year. If you are married you can transfer a liability to them to use their allowance too.
Investing in products that are CGT-efficient can also help. These include ISA’s, pensions and venture capital trusts (at the risky end but very tax-efficient), which are all CGT-free, and EIS’s, where gains become tax-free after three years.
It may also be worth crystallising any losses you've made as these can be rolled forward for when you do make gains in the future. You can reinvest in the same investment after 30 days or straightaway if you invest in something else, but the loss can be carried forward indefinitely and used against a future gain that's above your annual allowance.
For example, if you've made a £20,000 loss on your investments, sell them and notify the taxman of your loss through your self-assessment form. This can be carried forward until you sell your investment, which has a £30,000 gain. Then, by using your annual allowance (£10,200) and the loss (£20,000), there will be no CGT to pay.
If it’s all too much to handle on your own, a good IFA should be able to help you through the taxation maze.