Ways to save on tax
There are lots of ways to reduce your tax bill legally.
Some simple checks, such as making sure you're getting any tax credits you are eligible to, could put money back in your pocket with minimal effort.
Here are 30 simple tips and tricks that can help you cut down your tax bill legally and put more pounds in your pocket.
- Get a head start on your 2018-19 tax return with the Which? Tax Calculator. Tot up your bill, get jargon-free, money-saving tips and submit your return direct to HMRC.
Five of the top ways to save tax
Let's start with five of the most simple ways to save tax that are most likely to affect you.
1. Get the right tax code
Check your tax code each year (the numbers and letters on your payslip). If you're on the wrong code, you may be paying too much tax.
For more details, use the Which? tax calculator to find out how much tax you should be paying.
2. Find out if you can get tax credits
Tax credits are tax-free state benefits that provide extra money to those looking after children, disabled workers and other workers on low incomes.
Keep in mind that you can't claim tax credits if you already receive Universal Credit - but this benefits scheme will also pay out to those on low incomes.
3. Make the most of your Isa allowance
Use your tax-free Isa allowance. For the 2019-20 tax year, the annual limit is £20,000.
This can all be put in a cash Isa, all in a stocks and shares Isa, or split between both cash and stocks and shares. See our guide to tax on savings and investments for more details.
4. Pay into a pension scheme
Contributions to your employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged
The government will top up your pension with tax relief, giving you a free bonus for saving for retirement.
5. Maximise your personal savings allowance
In 2019-20 (as in the past two years), the first £1,000 of interest you receive from savings is tax-free if you are a basic-rate taxpayer. If you are a higher-rate taxpayer, the threshold is £500.
Only when your savings income exceeds the allowance is any tax is due on it. This will no longer be deducted at source – if tax is due, you can pay it via self-assessment or have it deducted via PAYE through an adjustment in your tax code.
There's no savings allowance if you're an additional-rate (45%) taxpayer.
Tax codes, allowances and deadlines
6. Capital gains tax (CGT) allowance
Capital gains is the profit you make from selling certain investments, including second homes, art, antiques and shares.
Capital gains up to £12,000 are tax-free in 2019-20. Married couples and civil partners who own assets jointly can claim a double allowance of £24,000.
This chart explains the rate of capital gains tax you will pay as a basic-rate and higher-rate taxpayer.
Remember, if you don't use the allowance within the tax year, it's lost forever. You can't add your tax-free allowances together for different years. For more details, see our guide on capital gains tax allowances and rates.
7. Tax return deadlines
Don’t miss the 31 October deadline if you want to make a paper tax return. You can do your tax online up to 31 January, but paper tax returns need to be in three months earlier than online tax returns to avoid a £100 fine.
For more details see tax returns.
8. Use the £5,000 starting rate limit for savings
If your income from your job or pension is below the £12,500 in 2019-20, but you earn income through interest on savings, you can qualify for the savings allowance.
Interest of up to £5,000 is paid free of income tax in addition to your personal savings allowance, meaning you could earn as much as £18,500 before paying tax.
9. Marriage allowance
From 6 April 2017, married couples and civil partners can transfer their unused personal allowance from the lower-earning partner to the higher earner.
Up to £1,250 can be transferred in 2019-20.
This is only available if the higher earner is a 20% taxpayer – no transfer is possible if they are a 40% taxpayer.
Try our quiz to see if you're eligible for marriage allowance.
Pay less tax if you're self-employed
Not sure if you're self-employed? Find out what HMRC's definition of self-employed is in our guide to help you work out if the tips in this section apply to you.
10. Tax-deductible expenses
If you're self-employed, don’t forget to claim all your tax-deductible expenses, including cash expenditure where eligible.
11. Self-employed car costs
If you're self-employed, you can claim the running costs of a car but not the cost of buying one. If you use the same car privately, you can claim a proportion of the total costs.
To do this, you'll need to either add up all of your motor expenses for the year and work out the business percentage based on the amount of business miles you do, or you can claim a fixed rate mileage allowance for business travel.
12. Cash-flow boost for self-employed
As a business owner, you can choose when your accounting year-end is. If you are setting up as self-employed, choose carefully.
If you choose an accounting year-end date earlier in the tax year you will have more time to pay tax on your profits. This means that as your profits increase, your tax bill will rise more slowly. The more time you have, the less likely it is that you will fall susceptible to fines for late tax assessments.
13. Annual losses
If you are self-employed, you can carry forward losses from one year and offset them against profits from the next. See our page on when the self-employed pay tax for more.
14. Payments on account
If you are self-employed and expect to earn less in 2018-19 than you did the year before, apply to reduce any payments on account that HMRC asks you to make.
You can do this using form SAS303.
Saving on property income tax
15. Rent a room
Rent a room relief is an optional scheme that lets you receive up to £7,500 in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home.
If two people who share a property take advantage of the scheme, they can only claim £3,750 each. This is reduced proportionally according to the amount of people owning the home.
You need to live in the property to get rent a room allowance - so even if you own the home, if you don't live there, you won't be able to benefit from it.
16. Landlord's expenses
If you rent out property, you can deduct a range of costs before declaring your taxable income. These include the wages of gardeners and cleaners, and letting-agency fees.
17. Landlord's replacement of domestic items
The government now allows landlords to claim tax relief on money spent to replace 'domestic items' in their rental properties.
The types of items you can claim relief on include beds, carpets, crockery or cutlery, sofas, curtains, fridges and other white goods.
But this only applies to items being replaced - not those bought for a property for the first time. You can also only claim the amount for a like-for-like replacement.
18. Tax relief on your buy-to-let mortgage
You can claim tax relief on interest on a mortgage you take out to buy a rental property, even if it the rental property is abroad.
This is different from if you're buying a house to live in yourself - in which case, you won't have the same tax reliefs.
From 2017 through to 2020, this is being phased out, and landlords will instead have a 20% tax credit on their mortgage interest.
Our video explains how this works. You can also find out more in our guide on mortgage tax reliefs.
19. Reduce CGT on a rental property
Landlords are normally liable for CGT when they sell a rental property.
If it has been your main home at some time in the past, you can claim tax relief for the last eighteen months of ownership.
Get expert buy-to-let mortgage advice
Before taking out a buy-to-let mortgage, it can be helpful to talk to a professional adviser. For impartial advice on the best mortgage for you from an expert who doesn't work on commission, call Which? Mortgage Advisers on 0800 197 8461 or request a free call back using the form below.
Cutting savings and investments tax bill
20. No CGT on shares held in an Isa
There is no CGT to pay when you sell shares or units held in an Isa. For more details, see Tax on savings and investments.
21. Junior Isas
Use Junior Isas to avoid being taxed on gifts you make to your own children.
The annual allowance for Junior Isas is £4,368 in 2019-20, up from £4,260 in 2018-19.
22. Transfer assets
Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. See our guide to tax and your partner for more information.
23. Dividend allowance
The dividend allowance was reduced from 6 April 2018 - but you can still save on investment income. Since then, you can earn £2,000 in dividend income without paying tax each year.
Find more information in our dividend tax guide.
Tax savings for older people
24. National Insurance
Make sure you stop making National Insurance contributions if you carry on working beyond state retirement age (currently 65).
25. Inheritance tax
Lifetime gifts are not normally counted as part of your estate for inheritance-tax purposes if you live for a further seven years after making them.
Known as potentially exempt transfers (PETs), they can reduce your residual estate significantly.
Charity tax savings
26. Charitable donations
Making donations to charity is tax free. Either yourself or the charity can claim the tax back through Gift Aid. If you pay higher or additional-rate tax, you can also claim back the difference between the basic and higher rate of income tax on any Gift Aid donations.
To do this you need to claim through your self-assessment tax return or ask HMRC to adjust your tax code. You will need to do this by calling them and asking for a P810 form.
Keep records showing the date and amount you have donated.
27. Season ticket loan
If you are a commuter, check to see if your employer will give you a tax-free loan to buy your season ticket.
28. Childcare schemes
If you are an employee and pay for childcare, ask your employer if they have a childcare scheme. Salary sacrifice childcare schemes are easy to establish and can result in substantial savings for both employees and employers.
29. Company car
If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead.
30. Low emission cars
If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price than cars with a high CO2 rating.