There are a number of simple (completely legal!) ways you can pay less tax. Here are the 10 best ways to quickly cut your tax bill with a minimum of hassle.
1. Pay less tax by using your ISA
Even when ISA interest rates are low, they’re still one of the most effective ways of reducing your tax bill. You can save up to £5,760 a year tax-free in a cash ISA – so if you’ve got any savings, you should definitely consider putting your money in one. See our guide to cash ISAs for more information.
ISAs are still one of the most effective ways to reduce your tax bill
2. Shield your children’s savings from tax
You want to shield your own savings from tax – so it makes sense to shield your kids’ money, too.
First, make sure your kids’ money isn’t being taxed by filling out a simple R85 form (our guide to children’s savings has more information).
Secondly, putting money into a Junior ISA will give them a tax-free nest egg for when they are older.
3. Transfer assets to your partner
If you’re married and one of you is a higher rate taxpayer and the other isn’t, then you can pay considerably less tax on your savings by making sure that some or all of your savings are in the name of the lower-rate taxpayer. (Just bear in mind that if you transfer assets to your partner, those assets are then legally theirs – important to remember should the relationship ever break up.)
4. Get tax relief on childcare
If you’re a working parent and pay for childcare, ask your employer if they have a childcare scheme. Employer childcare vouchers enable you to pay for childcare tax free – which can save you as much as £1,800 a year.
5. Check to see whether you qualify for tax credits
If you work at least 16 hours a week and have a medium to low income, you may be eligible for tax credits – which could boost your income by literally thousands of pounds a year.
It’s worth taking a few minutes to check whether you qualify for tax credits – they can save you thousands
(As a very rough rule of thumb, if your joint household income is less than £42,000, you have a good chance of qualifying for tax credits – but it very much depends on your individual circumstances.)
6. Maximise your pension contributions
Many people get confused by pensions: they’re seen as too complicated, and people often don’t want to lock money away until they’re 55 or older. But pensions don’t have to be complicated, and they offer excellent tax benefits.
Below are the pension tax relief rules at a glance:
- If you’re a basic rate taxpayer… you receive 20% tax relief on your pension payments. So if you paid in a £100 to your pension, the taxman adds £25 – giving you £125 in total.
- If you’re a higher rate taxpayer… you receive 20% tax relief, and can claim up to a further 20% through your tax return. So if you paid £100 into your pension, the taxman could add up to £40 – giving you £140 in total.
In short, the tax relief you get on a pension means a lot of extra money for you. It’s a bit like getting a big pay rise – although because it’s a pension, you obviously won’t be able to access the money until you retire.
7. Season ticket loans for commuters
If you brave the British railway system to work each morning, some employers offer tax-free loans to buy your season ticket – which make a horrendously expensive purchase a bit more bearable. Also, make sure you check out these top 10 tips on cutting the cost of train tickets – it could save you a packet.
8. Pay less tax if you’re self-employed
Many people who are self-employed don’t realise the number of expenses they can claim back tax on. For example, you can claim back:
- A proportion of your heating, lighting, water and Council Tax costs if you work from home
- Phone and internet costs
- Accountancy fees
- Stationary and postage costs
- Bank and credit card charges
- Car and travel expenses (for business related journeys)
Plus lots more! See HMRC’s notes for a full breakdown.
9. Run your own business? Get the tax relief you’re entitled to
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If you run your own business, you can get tax relief on the money you spend on things like office equipment, tools, computers and vehicles that are necessary for the running of your business through a scheme called the Annual Investment Allowance (AIA).
You can currently claim tax relief on up to £250,000 a year for business equipment, which could make a big difference to your business’s bottom line!
Tip: Thinking of starting your own business? Make sure you read our chat with BBC Apprentice star Saira Khan on why you should start your own business.
10. Rent a room
Did you know that if you rent out a room in your house to a lodger, you can receive up to £4,250 a year in rent completely tax free? See how your home can make you money.
If you pick and choose from the 10 tips above, you should soon be able to pay less tax – which can make a big difference to your take home pay.