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Don't include the taxman on your gift list

Christmas is a time for giving but no one wants to include the taxman on his or her gift list - and you don't have to if you take the advice of the Halifax.

It's 203 years since income tax was introduced, initially as a temporary tax to fund the Napoleonic War. However, income tax is one of a few that has lasted the course, and the one which takes the most out of the majority of people's wallets each year.

Gone are the days of the dog tax, where an assessor would go round at night, kick on every door, and assess the number barking, but there are still plenty of taxes levied and a few ways of mitigating them.

Income Tax - Savings
Use up your yearly ISA allowance of £7,000 for any liquid savings, the interest and returns are paid completely tax-free. If you are a non-taxpayer make sure any savings over and above your ISA limit pay a competitive rate and that you have completed Inland Revenue form R85 which will ensure your interest is paid gross.

If you have children with savings accounts make sure they are also getting their interest paid gross by completing form R85.

Pensions
Make use of the tax relief available on pension contributions - even non-taxpayers and children are allowed to save into a pension and have their contribution grossed up by the taxman.

The current maximum you're allowed to save into a stakeholder pension if you don't have earned income is £3,600 but this will only cost you £2,808 because of the grossing up effect. You can usually invest even more if you're earning but should take advice on the most appropriate planning for you.

The benefits on pensions are also tax efficient - you can take up to 25% of your fund at retirement as tax-free cash, the remainder has to be used to buy an annuity or income for life, this is subject to income tax.

Personal Allowances
Everyone is entitled to earn a certain amount before they are charged any tax - this is called a personal allowance and for a single person stands at £4,615.

People with children receive an extra allowance, which reduces their tax bill by up to £529 each year for each child. If you have children make sure you are getting this allowance and any others to which you may be entitled. The Inland Revenue will be able to advise you on this.

Value Added Tax
When you're buying presents for people buy books, they're exempt from Value Added Tax, which is charged at 17.5% on almost everything else you buy.

Halifax Financial Services Managing Director Keith Abercromby says:

"Christmas is more about spending money than saving it but a bit of planning now will make sure that next year you're not the only one contributing to the cost of Christmas."