Posted: 08, February 2024 by Amy Richardson
Tax Saving Tips
Around 6.8 million taxpayers face being placed into the higher tax bracket next year.
However, with a bit of extra planning and following our useful tips below even those earning
£110,000 will not have to pay high rate-tax.
How to reduce your income tax bill:
• Take advantage of salary sacrifice schemes.
Check if your employer offers a salary sacrifice arrangement for paying into a pension. You
can agree to a reduction in salary or waive a bonus in favour of a pension contribution. By
doing this it is possible for those earning just above the tax threshold to drop a tax band.
These schemes are not just for pensions they can be used for a range of benefits including
travel card loans, cycle to work schemes or even purchasing electric vehicles.
You will need to ensure that you can afford to reduce your salary in return for the perk and
make sure you are aware of any downsides to reducing your salary such as affecting
mortgage affordability.
• Claim Marriage Allowance
This allowance can save married couples or those in a civil partnership £252 a year in income
tax.
This is applicable for any couples where one partner earns less that the tax-free personal
allowance of £12,570 and the other earns less than £50,270 and is a basic rate tax payer.
This allowance is ideal for any couples where one person is unemployed or works part-time.
The lowest earner can transfer £1,260 of their unused tax-free allowance to the higher
earning partner which will increase their take home pay.
However, please note if the non-taxpayer earns more than £11,310 then they may need to pay tax, as their income will then
exceed their lower tax-free allowance.
You can backdate any claims for up to 4 years as long as you were eligible during this period.
• Make Pension Contributions
For any money you pay into a personal or workplace pensions the Government pay tax relief
up to £60,000 a year which will, therefore reduce the amount of income tax you pay.
Most people can pay £60,000 a year into a pension as long as its not more than 100% of
their earnings. This means someone earning £110,000 could reduce their taxable income to
£50,000 by paying the maximum amount of £60,000 a year into their pension.
• Charitable Donations
Donating to charity not only benefits the charity itself but can also reduce your tax bill. You
will need to ensure you have the spare cash to give away in the first instance, but once you
take into account the income tax you will save via gift aid it may cost you less than you think.
For example, if you were to donate £100, the charity will get £25 back through tax relief. Then
a higher rate tax payer can ger back 20% of the £125 which would equal £25. This works by
increasing your basic-rate band by the amount you donate.
Through the Gift-Aid scheme higher rate tax payers can claim back 20% relief on the full amount given.
Additional-rate taxpayers can claim 25% back.
You will need to provide details of the charitable donations in your self-assessment tax return.
• See if you can claim tax relief working from home
If you are employed and working from home you can claim tax relief. This is on the basis that
you have no choice but to work from home and that your employer does not reimburse you
for any expenses you incur by doing so.
You can claim a flat-rate tax relief on £6 a week, what you get will be dependent on your
income tax band. High rate tax payers get £124.80 for the year whilst basic-rate taxpayers
will get £62.40.
You can claim more but you will need to details and provide evidence of outgoings and it will
only be based on expenses solely used for work purposes that you would not pay if you were
going to an office i.e. extra heating.
If you are self-employed you can detail any expenses incurred working from home on your tax
return. These expenses will be set against your profits and reduce your tax liability.
• Check your tax code
Any employee or pensioner who pay tax via PAYE will have a tax code displayed on their
payslip or pension statement. This indicates how much income you receive before tax
deductions kick in.
1257L is the most common tax code and this is used for most people who have one job or
pension and it means you are entitled to the full personal allowance of £12,570.
It is important to make sure your tax code is correct particularly if your circumstances have
changed recently. It is your own responsibility to make sure your code is correct and you are
not paying too much tax.
• Share Capital Gains Tax
The Capital Gains tax allowance was halved from £12,300 to £6,000 and is due to be cut
again to £3,000 in 2024-25.
For any couples that are married or in a civil partnership, you can reduce your liability by
transferring assets to your partner and pooling your CGT allowances. Transfers between
couples that are married or in a civil partnership are tax-free and you can collectively benefit
from a £12,000 tax-free allowance.
As an example - If a higher rate taxpayer sold a £50,000 portfolio and cashed in a £15,000
gain, they would owe £1,800 in CGT, or £2,400 if they cashed in after April 2024.
If however, they transferred some of the portfolio yielding a £6,000 gain, the tax owed on the
remaining £10,000 would be £800 (or £1,400 after April).
You could also benefit from your spouse’s lower tax rate if they earn less than £50,270.
You can reduce your overall amount of income by reducing your taxable capital gains.
• Make the most of ISA’s
ISA’s are a good way to invest your money as dividends from ISA’s do not count towards your
annual income.
It is always a good idea to use up your allowances where possible, yourself and your partner
would both have a £20,000 allowance per year. This is on a ‘use it or lose it’ basis.
In the Autumn Statement the chancellor also announced that, from April 2024 onwards,
savers will be able to open more than one of the same type of ISA.
There are four different types of ISA: Cash ISA, Lifetime ISAs’, Stocks and shares ISA &
Innovative finance ISA’s.
• Back start-ups
Investing in Venture Capital Trusts or Enterprise Investment Schemes can give you 30%
income tax relief if you hold them for five years, respectively. Compared to traditional
investments these are considered high-risk however, investors do receive a tax relief
incentive in order to try and help start-ups of the ground. This will not reduce your taxable
income but you will receive some money back via the relief. The returns are paid out to
investors via dividends.
You can get income tax relief for up to £200,000 of your annual investment in Venture
Capital Trusts. For Enterprise Investment Schemes the maximum is £1m. You can also get
100% capital gains tax relief if your shares grow in value, and up to 45% loss relief if a
company fails.
We would only recommend investing in either VCT or EIS if they are suitable for your
investment purposes and risk appetite.
You can invest in Enterprise Investment Schemes directly through investment platforms or
through funds. You can apply for shares in Venture Capital Trusts when they open for new
investment.