35 ways to save on tax - Which? (2024)

How to pay less tax

There are lots of ways to reduce your tax bill legally, whether you're an employee or self-employed, a landlord, investor or pensioner.

We explain how simple checkscould boost your take-home earningswith minimal effort, andhow to take advantage oftax reliefs and government schemes.

Here are 35simple tips and tricks that can help you cutyour tax billto put more pounds in your pocket.

• Get a head start on your 2022-23 tax return with the Which? Tax Calculator. Tot up your bill, get jargon-free, money-saving tips and submit your return direct to HMRC.

Reduce your income tax

Let's start with five of the most simple ways to save tax on your earnings.

1. Check your tax code

Your tax code indicateshow much tax HMRC will collect fromyour salary. You can find it on your payslip.

Check your tax code each year, or after changing jobs, to make sure it's correct for your situation. Find out the most common ones in our guide to understanding your tax code.

If you're on the wrong code, you may be entitled to pay less tax in coming months, or receivea refund for previous years.

2. Claim tax credits

Tax credits provide extra money to those looking after children, disabled workers and other workers on low incomes.

The two main types you can claim: working tax credit and child tax credit.

People on tax credits are due to be moved to Universal Credit by 2024. You can apply sooner, but keep in mind that you can't claim tax credits if you already receive Universal Credit.

3. 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. You can use our pension tax relief calculator to work out how much you could save.

4. Benefit from marriage allowance

Marriage allowance is a tax perk that benefits couples where one partner earns less than the personal allowance.

If you're married or in a civil partnership, you can transfer 10% of personal allowance from the lower-earning partner to the higher earner, equating to £1,260 in 2023-24. This will potentially save you up to £250 in tax as a couple. To qualify, the higher earner must be a basic-rate taxpayer.

5. Meet the tax return deadline

If you're one of the 12m people who need to submit a self-assessment tax return, make sure you don't missthe deadline - it'sa costly and easily-avoided mistake.

For online submissions, you have until 31 January 2024 to send in your 2022-23 return. But if you want to file on paper, you'll need to submit by 31 October 2023.

Miss the deadline and there's an automatic £100 fine - even if you don't owe any tax. There are additional penalties if your submission is three, six or 12 months late - and separate charges if you haven't paid your tax bill on time.

• Use the Which? tax calculator to tot up your return and submit directly to HMRC.

6. Reclaim overpaid taxes

If you are a non-taxpayer, or your income unexpectedly falls during a year, you may find that you've been taxed more than you should have done, as HMRC assumes your personal allowance is equally used each month.

To reclaim, fill out form R40 from HMRC, or call them.

If you are filing a self-assessment tax return, any refund owed by HMRC won't be processed until it receives the money - planning ahead and filing well before the January deadline means you may receive a rebate quicker, as the tax office is likely to be quieter. So the sooner you file, the better.

Employee tax benefits

7. Get a season ticket loan

Some employers will offeryou a tax-free loan to buy your season ticket, potentially saving you hundreds on travel costs. Ask your employer if they're part of the scheme.

8. Claim tax-free childcare

Under the tax-free childcare scheme, you can claim back 25% of your childcare costs. To get started, you'll need to set up an online account, which can be used to manage payments to your childcare provider. For every £8 you deposit, the government will pay in £2, up to the value of £500 every three months, or £1,000 if a child is disabled.

You'll have to meet set criteria, including having a child under 11 and earning less than £100,000.

9. Get a 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.

10. Switch to a low-emission car

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.

The tax rate for company cars will be frozen at 2022-23 levels until the end of the 2024-25.

Cut tax on your savings

11. Maximise your personal savings allowance

In 2023-24, you can earn £1,000 of interest on savings tax-free if you're a basic-rate taxpayer. If you're a higher-rate taxpayer, your tax-free allowance is £500.

You'll only pay tax on savings income that exceeds this threshold.

This will no longer be deducted automatically by the savings provider. If tax is due, you'll need to pay it via self-assessment or have it deducted via PAYE.

Keep in mind that you won't have a savings allowance as anadditional-rate (45%) taxpayer.

12. Make the most of your Isa allowance

Everyone can take advantage of their annual tax-free Isa allowance. For the 2023-24 tax year, you can deposit up to £20,000 into Isa accounts. This is unchanged from 2022-23.

This can all be put in a cash Isa, a stocks and shares Isa, or split between both cash and stocks and shares. We explain how this works in our guide to Isa rules and allowances.

13. Use the starter rate for savings

If your income from a job or pension is below £12,570 in 2023-24, but you earn income through interest on savings, you may also qualify for the starter savings allowance.

Any interest you earn up to £5,000 is tax-free. This will be in addition to your personal savings allowance, meaning you could earn as much as£18,570 before paying tax.

Pay less tax if you're self-employed

People who work for themselves can benefit from a range of tax perks. Not sure if you're self-employed? Check HMRC's definition of self-employed in our guide.

14. Tax-deductible expenses

Many expenses incurred while running your business can be deducted from your profits, reducing your overall tax. This could include things like fuel, phone costs, or running costs for your home office.

Find out what types of expenses you can claim in our guide to self-employed expenses you can claim.

15. Self-employed car costs

You can generally claim the running costs of a car you use for business (though not the cost of buying one). If you use the same car in your private life, 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 percentage of business miles you did, or you can claim a fixed rate mileage allowance for business travel.

16. Cash-flow boost for self-employed

As a business owner, you can choose when your accounting year ends - and it's worth choosing carefully.

If you pickan accounting year-end date earlier in the tax year, you'll 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 you'll struggle to pay your tax bill on time.

17. Annual losses

If you make a loss in one tax year, you can carry it forward and offset itagainst profits from a more successful year. This decreases your taxable income.

You can find out more in our guide to paying tax when self-employed.

18. Payments on account

Generally, self-employed people will be requiredto pay tax in two advance payments - in January and then July.The amount you'll pay will be based on the previous year's tax bill.

So, if you expect to earn less in 2023-24 than in the year before, you can apply to reduce your payments on account. You'll need to submit form SA303, either online or via mail to HMRC.

Cut your investments tax bill

19. Dividend allowance

Each year, you can earn a certain amount of income from dividends before paying tax.

In 2023-24, the tax-free dividend allowance is £1,000. This will reduce to £500 for 2023-24. It was £2,000 in 2022-23.

You can find out more in our guide to dividend tax.

20. 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 of up to £6,000 are tax-free in 2023-24. Married couples and civil partners who own assets jointly can claim a double allowance of £12,000.

This reduced from £12,300 in 2022-23.

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.

This chart explains the rate of capital gains tax you will pay as a basic-rate and higher-rate taxpayer. For more details, see our guide on capital gains tax allowances and rates.

21. No CGT on shares held in an Isa

You won't pay capital gains tax when you sell shares or units held in an Isa.

We explain everything you need to know in our guide to tax on savings interest and investment income.

22. Transfer assets to your spouse

You won't be charged capital gains tax if you transfer assets to your spouse or civil partner - and alower-earning spouse may pay more favourable income tax rates.

So, it may be worthtransferringsavings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do.

23. Junior Isas

When making giftsto your own children, you can avoid paying tax on the interest by paying into a junior Isa.

The annual allowance for Junior Isas is £9,000 in 2023-24. Find the best Junior cash Isas.

24. Switch to capital-boosting investments

If your investments held outside an Isa are generating a substantial income, higher- and additional-rate taxpayers might be able to cut their bill by switching to investments targeting capital growth.

As well as the annual capital gains allowance (£6,000 in 2023-24), you may benefit from lower tax rates. Higher-rate taxpayers pay 20% on capital gains, but 33.75% on dividend income.

25. Invest with an Enterprise Investment Scheme

To encourage investments in early-stage businesses, the government offers extra tax relief on some investments.

If you buy shares in a qualifying company, typically through crowdfunding investment sites like CrowdCube or Seedrs, you'll be able to deduct 30% of your investment from your income tax bill for the year. The amount you can invest in any given year is £1 million - potentially saving up to £300,000 in income tax.

26. Make the most of Venture Capital Trusts

Similarly, Venture Capital Trusts (VCTs) also offer 30% tax relief, but only on investments up to £200,000. VCTs are a specialist type of investment trust, meaning the investments are managed by a fund manager, rather than chosen yourself.

To qualify for the relief, you'll need to buy the shares at launch, and hold them for at least five years.

27. Buy shares through your company

If your employer offers free shares or the right to buy shares at preferential rates through a government-approved scheme, such as the ShareIncentive Plan, Company Share Option Plan or Enterprise Management Initiative Scheme, the value of shares is exempt from income tax and National Insurance.

However, it's not entirely tax-free. You'll likely need to pay capital gains tax when you eventually sell your shares.

Save on property income tax

28. Use the Rent-a-Room relief

The Rent-a-Room scheme allows 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, and you'll need to live in the property as well.

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 number of people owning the home.

29. Landlord's expenses

If you rent out property, you can deduct a range of costs from your taxable income.

These include the wages of gardeners and cleaners, letting-agency fees, ground rents and service charges, accountant's fees and landlord insurance. Find out what else you can claim in our guide to expenses and allowances landlords can claim.

30. Landlord's replacement of domestic items

Landlords can claim tax relief on money spent to replace 'domestic items' in their furnished 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.

31. Tax relief on your buy-to-let mortgage

When you take out a mortgage to buy a rental property, you can claim a 20% tax credit on mortgage interest.

You can also find out more in our guide to buy-to-let mortgage interest tax relief.

32. Reduce CGT on a rental property

Landlords are normally liable for capital gains taxwhen they make a profit from selling a rental property.

However, if the propertyhas been your main home at some time in the past, you can claim tax relief for the last ninemonths of ownership.

The rules are complicated, but we explain how they work in our guide to capital gains tax on property.

Tax savings for older people

33. National Insurance

You won't need to keep making National Insurance contributions if you carry on working beyond state retirement age (currently 66 for both men and women).

So make sure your employer is aware of this and adjusts your pay.

Find out more: National Insurance and state pension

34. Cut a future inheritance tax bill with gifts

Gifts aren't counted towards your inheritance-tax bill if you live for a further seven years after making them. Known as potentially exempt transfers (PETs), a gift from your estate can reduce your bill significantly.

What's more, you can give away up to £3,000 each year without ever having to worry about the potential tax, as well as multiple smaller gifts of £250, providing they don't go to the same person.

You can find out more in our guide to inheritance tax on gifts.

Charity tax savings

35. Make a charitable donation

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 to the basic-rate on any Gift Aid donations.

To do this, you need to claim on your self-assessment tax return or ask HMRC to adjust your tax code.

As a basic rate taxpayer, a £1.25 donation will cost you a pound. For higher rate taxpayers, you'll pay just 75p. Keep records showing the date and amount you have donated.