Do yourself a favour: give the taxman less

Each year we give the Treasury pounds 5bn more than we need to. Tony Lyons offers a guide to keeping more of your hard-earned cash

EVERYONE COMPLAINS about the amount they pay the tax man, whether it is on salaries and benefits or interest, dividends and capital gains. Yet many of us fail to take advantage of the tax allowances that can legitimately be claimed.

Are you running your financial affairs as efficiently as you can? Before you have to employ the services of an accountant and a financial adviser, ensure that you are being as astute as possible in organising your tax affairs.

Don't forget that husband and wife can elect to be taxed singly on their earnings, with both eligible for the single person's allowance. If the wife does not have any earnings, then the husband should claim the married allowance.

If your wife or husband has minimal or no earnings, it is worthwhile putting some investments and deposits in their name. If they do not pay tax, they can have their investment income paid gross.

In April next year, we will see the introduction of individual savings accounts, which will replace PEPs and TESSAs. Before the end of the year, the Government should tell us more about its ideas for the future of pensions, especially what it means about "stake-holder pensions".

These innovations will continue the recent history of various Chancellors of the Exchequer introducing legislation to encourage us to invest as efficiently as possible, something we fail to do. The Inland Revenue, for example, states that non taxpayers fail to reclaim some pounds 500m a year that they need not have paid, much of this on building society deposits.

A more recent survey by IFA Promotion, which puts people in touch with independent financial advisers, showed that as a nation we paid over pounds 5.5bn more in tax than we need to, equal to pounds 158 a head. Much of this was due to our not taking advantage of the various tax saving plans that are available.

As we have become more sophisticated about investment, so the choice of tax efficient products has grown. Once, it was just National Savings. Then as the government of the day became concerned about pensions, retirement products were encouraged. Then came encouragement to invest through business enterprise schemes, which were then followed by PEPs, just over 11 years ago, and TESSAs. So there is a wide range of tax efficient investments. This survey looks at some of the opportunities they offer for accumulating a nest egg.