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It is estimated that we pay almost £8 billion too much into the Treasury's coffers each year. Paying tax is often unavoidable, yet many people pay more than they need to; IFA Promotion (IFAP) estimates that British adults waste £7.6 billion in tax a year - some £155 per person.

So how can you make sure you avoid overpaying and keep your finances in the best of shape? Here are a few tips to keep your tax position staying healthy.

Your tax code
Make sure you have been paying the correct amount of tax over the past year. Mistakes do happen and can go unspotted.

If you are over 65, you should check you are getting the correct personal allowance. The allowance for the 2006-07 tax year is £5,035, but if you were aged 65 to 74 on April 5 2006 it is increased to £7,280. If you were aged 75 or over on April 5 2006 the tax free allowance stands at £7,420.

This extra allowance can be reduced if a pensioner's earnings are relatively high. The personal allowance falls by £1 for every £2 earned above £20,100, although the personal allowance cannot be cut below the normal level of £5,035.

H M Revenue & Customs (HMRC) often fails to switch people to this higher allowance automatically because it does not have the birth dates for all taxpayers. If this is the case, a pensioner with an income of £12,000 could be paying £493 a year more in tax than needed.

If you are married and one of you was born before 6 April 1935, you can claim an additional allowance called the married couple's allowance. This allowance is restricted to give relief at a fixed rate of 10 per cent. This means that, unlike the personal allowance, the married couple's allowance is not income you can receive without having to pay tax. Instead, it reduces your tax bill by 10 per cent of the amount of the allowance you are entitled to.

For example, this year's basic allowance if both parties are under 75 is £6,065, so your tax bill could be reduced by £606. If one party is over 75 the allowance increases to £6,135 in the current tax year. This allowance starts to diminish once your income reaches £20,100.

Savings
If your spouse is a non-taxpayer, consider transferring any spare savings into their name. This makes use of their personal allowance to avoid being taxed on the interest earned.

Make sure that you are protecting as much of your savings and investments as possible from income tax and capital gains tax. You can shelter £3,000 of your bank or building society savings in a Mini-Cash ISA in any one tax year, or invest £7,000 of equities in a Maxi-ISA. Alternatively, invest £3,000 in a Mini-Cash ISA and £4,000 in a stocks and shares Mini-ISA. These combined cannot exceed the £7,000 limit each tax year. You are not permitted to open a Maxi and a Mini in the same tax year.

Pensioners with an ordinary savings account should fill in form R85 to receive bank and building society interest without tax being deducted. You can only use form R85 to get gross income if you are a non taxpayer, or the level of interest is less than your personal allowances and it is not restricted to pensioners.

It is also worth considering tax-free savings certificates from National Savings & Investments if you are a higher-rate taxpayer.

Inheritance tax
Inheritance Tax (IHT) swallows 40 per cent of anything in your estate above the nil rate band (£285,000 in the current tax year 2006/7) when you die. Soaring property prices mean that IHT is a significant problem, and even more people should now be making maximum use of all IHT mitigation tools.

First, give away assets where possible - but only those that you are quite sure you will not need later on. Gifts made at least seven years before you die are not subject to IHT.

If you die within the seven years, the tax owed on the assets by your estate diminishes on a sliding scale after the third year.

You can give away £3000 per annum under one allowance, £250 per recipient under another allowance and "regular gifts from surplus income" under a third allowance. These are in addition to the wedding gifts.

Charities
While doing your tax housekeeping, remember that any donations to charity can attract tax relief. Giving to charity during your lifetime gets Gift Aid based on income tax and any bequest to a charity in a will is free of IHT.

If you require any further information, please email or contact us.