20 Effective Ways to Save Tax in the UK
Tax planning might not be the most riveting subject, but it is essential for both individuals and businesses in the UK. There are many ways to save tax legally and ethically. Here are twenty tips to help you keep more of your hard-earned money – our top 20 ways to save tax:
Personal Taxes
1. Use Your Personal Allowance
Everyone in the UK has a tax-free personal allowance, which is £12,570 for the tax year 2023-2024. Make sure to take full advantage of it.
2. Transfer Unused Allowances
If your spouse or civil partner earns less than their personal allowance, consider transferring up to £1,260 of it to yourself to reduce your tax bill.
3. Contribute to a Pension Scheme
Pension contributions can reduce your taxable income. Both private pensions and employer-sponsored schemes are eligible for tax relief.
4. ISAs are Your Friend
Investing in an Individual Savings Account (ISA) offers a tax-efficient way to save as any earnings within the ISA are tax-free.
5. Gift Aid Donations
When donating to charities, use Gift Aid. The charity can claim an extra 25p for every £1 you donate, and if you are a higher-rate taxpayer, you can claim back some tax as well.
Business Taxes
6. Choose the Right Business Structure
The tax implications differ for sole traders, partnerships, and limited companies. Make sure your business structure is the most tax-efficient for your circumstances.
7. Claim Expenses
From mileage to stationery, ensure you claim all allowable business expenses to offset against your income.
8. Employ Family Members
Employing a spouse or family member can help distribute income more efficiently and potentially lower your tax liability.
9. Use Annual Investment Allowance
Businesses can claim an Annual Investment Allowance on purchases of business-related equipment, offering immediate tax relief on these items.
10. R&D Tax Credits
If you engage in research and development, check if you are eligible for R&D tax credits.
Rental and Property
11. Rent a Room Scheme
If you rent out a room in your property, you could earn up to £7,500 tax-free per year.
12. Property Allowance
A £1,000 tax-free property allowance is available for individuals earning lesser amounts from renting out property.
13. Use a Property Management Company
Placing your rental property under a management company could offer tax benefits, such as corporation tax rates instead of income tax.
14. Landlord Expenses
Do not forget to claim allowable expenses like maintenance costs, agent fees, and mortgage interest.
Estate Planning
15. Inheritance Tax Gifting
You can gift up to £3,000 per year without it being subject to inheritance tax.
16. Potentially Exempt Transfers
Gifts made more than seven years before your death could potentially be exempt from inheritance tax.
17. Use Trusts
Use trusts to manage how your assets will be distributed to beneficiaries, which can be tax efficient.
18. Business Property Relief
Investing in qualifying business properties can offer significant inheritance tax relief.
Miscellaneous
19. Capital Gains Tax Allowance
Use your tax-free capital gains allowance, which stands at £6,000 for individuals for the tax year 2023-2024.
20. Seek Professional Advice
Tax laws are complicated and ever-changing. To ensure you are doing all you can to save on taxes, consult with a qualified accountant or tax advisor.
Remember, tax planning is a continuous process, and these are general tips. Always seek professional advice tailored to your personal circumstances.
