Paying tax is part of life, but there are many ways to make sure you aren’t paying more than you need to. Here are ten simple and legal strategies to help you keep more of your money.
1. Make the Most of Your Tax-Free Allowance
Every individual is entitled to a tax-free personal allowance (£12,570 for 2024/25 and expected to remain until April 2028). If your income is just above this threshold, you can reduce your taxable income by making pension contributions or Gift Aid donations, potentially keeping your income below the allowance and reducing your tax bill.
2. Use the Marriage Allowance
If you are married or in a civil partnership and one partner earns less than the personal allowance, you can transfer 10% of the unused allowance to the higher-earning partner, saving up to £252 per year. The claim must be made by the lower earner and can be backdated for up to four years.
3. Take Advantage of Savings and Dividend Allowances
The Personal Savings Allowance allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free (£500 for higher rate taxpayers). The dividend allowance is £500 for 2024/25. Spreading savings and investments between spouses or civil partners can help both make full use of these allowances.
4. Put Money Into ISAs
ISAs (Individual Savings Accounts) allow you to save or invest up to £20,000 per year tax-free. No income tax or capital gains tax applies to returns within an ISA.
5. Increase Your Pension Contributions
Pension contributions are deductible from your taxable income, reducing your tax bill. Contributions can also help you retain your personal allowance if your income is above £100,000, as the allowance tapers off above this level. Pension contributions are deducted at Step 2 of the income tax calculation.
6. Use Salary Sacrifice Schemes
Some employers let you give up part of your salary in exchange for benefits like extra pension contributions or childcare help. This can lower your taxable income and reduce the tax you pay.
7. Claim Work-Related Expenses
If you’re self-employed or rent out property, make sure to claim all the costs related to your work, such as travel or office supplies. These expenses can reduce your taxable income.
8. Invest in Tax-Efficient Schemes
Certain government-backed investment schemes offer tax breaks to encourage people to invest in small businesses. These can help you pay less tax on your investments.
9. Plan When You Sell Investments
You don’t have to pay tax on all profits from selling investments. By planning when and how you sell, or by sharing assets with your partner, you can use both of your allowances and reduce your tax bill.
10. Give to Charity with Gift Aid
When you donate to charity using Gift Aid, the charity gets extra money from the government, and you may be able to claim back some tax as well. This can lower your taxable income.
Final Thoughts
Tax rules can change, so it’s a good idea to review your finances each year. Using these simple strategies can help you pay less tax and keep more of your money. For more complex situations, consider speaking to a tax adviser for personalized help. For expert help, you can contact MAH Chartered Accountants.