Infographic: I understood very little about Tax until now

Tax is part of our lives whether we want it or not. It touches our income, contributes to our society, our healthcare, education, roads and more.
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In this post, I spend some time looking at the UK tax rules to find out which benefits we could use to grow and protect our money. I put my basic findings in an infographic to make it simple [Scroll down to view].

So let's learn about tax so we no longer label it as highly-confusing and downgrade it to somewhat confusing (a much better space to be in).

[Quick definitions] 

• TAX: is a payment made to the government which comes from income or things you inherit, buy or sell.
• ​TAX RELIEF: is money you get back. It reduces the overall tax you pay.

The Tax Web

Throughout this research, I found that Tax is actually not hard to understand on its own. The confusion comes when you have to consider all parts. Take this example: 

You have an income over the personal allowance threshold whilst saving for a pension and a home which your family will support you with a deposit. 

I call this the web because to understand your tax position, you need to understand the Tax rules for income, pension, stamp duty tax and gifts.  No wonder you and I shun this topic...but to our own wealth demise.

Did you know that if you make a loss when you sell your home, shares in an ISA, or a personal possession worth £6,000 you can get a tax relief? Imagine that getting paid when you lose. These are the kinds of helpful money tips I want to know about (I've added much more below).

Get Clarity
If you work for an employer, your income tax is typically handled by your company. If you are self employed, you'll file paperwork on your own or via an accountant/certified tax advisor to pay the appropriate tax and claim relief. Anyone can reach out to an accountant or tax advisor on tax matters.

Before we move on, one question. What tax rate payer are you? If you don't know the answer, keep reading to find out.

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Reasons you should know a little something about tax

• You earn money
• You own a business
• You will get an inheritance, plan to leave an inheritance
• You donate
• You want to reduce your tax bill
• If you make or plan to make 6 figures
• You made a loss when you sold an asset

What Tax Rate Payer are you?

• Possible Answers: 0%, 20%, 40% or 45%

 
​Your income determines how much tax you pay. The UK uses a progressive tax system, where the more you earn the more you pay in tax. So, if you earn up to £12,500 per year, you'll pay £0 tax.

​On the other hand, the highest income earners pay up to 45% of their income in tax. This can be very difficult to accept which is why many people look at ways to legally reduce their tax bill by using some  of the options outlined in the infographic such as increasing payments to their pension, using ISAs to prevent being taxed again or not taking out dividend income for a given tax year (deferring it). Some others flee the UK to low tax rate countries. Just know that your tax solution or option is unique to your personal circumstance.

Find out what tax rate payer your are here.

TIP
Use income calculators to see the breakdown of your Tax, National Insurance and Pension.

More tips & resources

• If you make more than £183 per week, you will pay National Insurance (NI). ​Click here to find out how much NI you'll pay per year.
• Learn more about your Personal Allowance.
• If you make more than £100,000, your personal allowance goes down by £1 for every £2 you make over this 100k. Kirkrice gives advice on how to work around the loss of personal allowance to keep more of your money.
• If you make more than £125,000, you loose all of your personal allowance.
• Learn about Tax relief with EIS, SEIS and VCT.
• You pay no Inheritance Tax if 7 years or more has passed between when you received the gift and when the person giving passes on. Find out how much is tax free here.
• You pay no Capital Gains tax if you sell your main residential home or give your assets away to Charity.
• If you make a loss on an asset you sell (Shares in an ISA, EIS, 2nd Property), you can get a tax relief. You can also use this method to reduce your Capital Gains tax if it is more than £12,300.
• You can get £6 a week tax free from employers (£312 per year) for working from home (especially during Covid-19). Alternatively and depending on your tax rate, you can get a tax relief up to £2.40 per week (£124.8). You do not have to provide any evidence to make the claim. Click here for more details.
• Pay no stamp duty land tax when you purchase a home of £500,000.
• Learn about VAT too.
• if you are a low income earner, you can get 20% tax relief if you save up to £2,880 into your pension in each tax year. Read more​.
  

Remember this:
In a given tax year you can save £72,300+ tax free!
20,000 (ISA) + 40,000 (Pension) + 12,300 (Capital Gains Tax Free allowance) = £72,300

Get Tax Advice

• UK rules on Money and Tax 
• Tax Aid
• Citizens Advice
• Income Tax
• DO THIS: HRMC - check your tax code and National Insurance record.
• Get in touch with a Chartered Accountant who can guide you on self assessment and Tax 

Videos on Taxes