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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.
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).
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).
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.
What Tax Rate Payer are you?
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.
More tips & resources
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Videos on Taxes