Tax-efficient saving: money matters

Look through all the financial implications of working and earning abroad with our simple guide

Please note: this article concentrates on the UK tax system, and is intended as a rough guide only. We recommend that all our customers seek independent personal tax advice.

Tax-efficient savings checklist — things to consider:

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• What is my personal tax allowance?
• What are my plans: to save for the short to medium-term, or plan for the long-term and/or retirement?
• Do I intend to live or retire abroad?

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Tax-efficient savings: common questions

There are currently three levels of personal tax allowance:

• The basic rate for the 2008-09 tax year is £6,035 (with no income limit).
• For those aged 65-74, the allowance rises to £9,030 (with a £21,800 income limit).
• For those aged 75 and over, the allowance rises to £9,180 (with a £21,800 limit).

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There are a number of established tax-efficient schemes in the UK:

Individual savings accounts (ISAs)

ISAs are tax-free savings and investment accounts which you can use to save cash or invest in stocks and shares. In each tax year you can put up to £7,200 into an ISA, without paying tax on the interest or dividends. Any profits from investments are also free of Capital Gains Tax.

National Savings and Investments (NS&I)

Tax-free savings and investment products from NS&I are backed by the Treasury and include a cash mini-ISA (for savers aged 16+), fixed interest and index-linked savings certificates (for savers aged 7+) and Children's Bonus Bonds (which can be invested in for 5 years on behalf of children aged under 16).

Tax relief on pension savings

Government "tax relief" on pension contributions make pensions an effective tax-efficient savings scheme. When you retire, the Government will usually allow you to take up to 25% of your pension income tax-free, with subsequent regular pension income subject to tax.

The "A-day" pension rules introduced in 2006 also mean you can save as much as you like into a number of pension schemes, and get tax relief on contributions of up to 100% of your earnings each year (subject to maximum annual allowance).

Tax-free interest on bank and building society accounts

If your taxable income is less than your tax allowances, you can register to have your bank or building society interest paid "gross".

Child Trust Fund (CTF)

If your child was born after 1 September 2002, and is awarded Child Benefit, you receive a £250 government voucher (with an additional extra £250 payment if your income is below a certain level) to set up a CTF account. Once opened, you can add up to £1,200 to the account each year, with no tax payable on any income or gains in the account until your child reaches the age of 18.

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While tax-efficient savings schemes minimise the tax liability during your lifetime, the majority will subsequently be liable for inheritance tax, levied at 40%, on the amount over the nil rate threshold (currently £312,000). Get more information on inheritance tax.

There are a range of exemptions and strategies you can use to re-distribute your assets and minimise your liability, so it's important to get advice on your personal tax situation.

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If you move abroad, or are thinking about moving abroad, you should always review your tax situation, and look at how the move would impact on your savings and pension, to ensure your savings schemes are still the most efficient options for you.

Offshore savings accounts may offer you important financial and tax advantages, while international accounts offer easy access to your money while abroad.

If you're a Lloyds TSB International Account customer you can get personal advice through our partners. For more details, call 0800 876 6555.

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UK nationals can get more information on tax by contacting Her Majesty's Revenue and Customs — there's also extensive information on the HMRC website.

If you're a Lloyds TSB International Account customer you can get personal tax advice through our partners. For more details, call 0800 876 6555.

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This information is based on our understanding of current law and tax authority practice and may be liable to change, which could be with retrospective effect. This information is for general information purposes only. No liability can be accepted for the effect of any subsequent legislation of change of official practice. If you require tax advice you should consult your own professional advisers, and not rely on the information contained within this booklet. The greatest care has been taken to ensure accuracy but the Bank cannot take responsibility for omissions or errors. Tax levels or relief are those currently applicable and may change. The value of any tax relief depends on the individual circumstances of the investor/customer.