How to reduce your income tax bill
Income tax is a necessary component of living and working in the UK, but it can also be a significant expense. There are, however, ways to reduce your income tax bill and keep more of your hard-earned money.
Here are some strategies to consider:
1. Make use of tax-free allowances: There are a number of tax-free allowances available in the UK that can help reduce your income tax bill. These include the personal allowance, which allows you to earn £12,570 of income tax-free, and the annual ISA allowance, which allows you to save £20,000 in an ISA each year without paying tax on the interest earned.
2. Contribute to a pension: Contributing to a pension is a great way to reduce your income tax bill. Pension contributions are tax-deductible, which means that the amount you contribute is deducted from your taxable income. This can help to reduce your income tax bill and save for your retirement at the same time.
3. Make use of income-splitting: If you are married or in a civil partnership, you may be able to make use of income-splitting to reduce your income tax bill. This involves transferring income from one spouse to another in order to take advantage of their personal allowance and lower tax rate.
4. Take advantage of tax reliefs: There are a number of tax reliefs available in the UK that can help to reduce your income tax bill. These include charitable donations, business expenses, and investment losses. Make sure you are aware of all the tax reliefs available to you and take advantage of them where possible.
5. Consider investing in a VCT, EIS or SEIS: Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are tax-efficient investment schemes that offer tax relief to investors. Investing in a VCT, EIS or SEIS can help to reduce your income tax bill and potentially provide a good return on investment. For more information on VCT, EIS and SEIS view our guides here.
Reducing your income tax bill requires careful planning and consideration of all the available options, which may include any employee benefits your current employer offers.
But in short, by making use of tax-free allowances, contributing to a pension, income-splitting, taking advantage of tax reliefs, and investing in VCTs, EISs or SEISs, you could help to reduce your income tax bill and keep more of your money.
It is important to seek the advice of a qualified financial adviser before making any investment decisions or taking any tax planning steps.
If you’re thinking of seeking financial advice, our multi award winning team of Chartered Financial Advisers can help you. Initial meetings are free and enable you, and us, to understand how a financial adviser can help you in your current position.