Salary Tax Saving: There are several legal ways to lower your tax liability and save money. You can take the help of a tax advisor in London to show you how to take advantage of tax breaks and government programs.
You can now check your income tax by setting up a personal tax account.
Here are our top tips to reduce your tax bill legally.
Table of Content
1. CUT TAX ON YOUR SAVINGS
○ Maximize your personal savings allowance
If you’re a basic-rate taxpayer in 2024-25, you may earn £500 in interest on savings tax-free. Only the part of your savings money that surpasses this threshold is subject to taxation. You may either pay it yourself or have it deducted through PAYE if you owe tax since it will not be deducted automatically.
○ Use your ISA allowance
You can put up to £20,000 into an ISA account in the tax year 2024-25 to use your yearly tax-free Isa allowance. All this can be deposited into a cash ISA, stocks and shares ISA, or a combination.
2. CLAIMS
○ Make a complete claim for tax relief on pension contributions
HMRC will automatically raise payments into your pension by 20% (subject to certain restrictions), so an £80 contribution will become £100. If you are a higher rate taxpayer, then you may also qualify for personal pension contributions. Don’t let this opportunity pass you by!
○ Claim all tax relief due on charitable donations
Online donations are simple to do these days, and contributing through Gift Aid allows charities and community amateur sports clubs (cases) to claim an additional 25p for every £1 they receive.
When you report them in your tax return, you can obtain higher or extra rate tax relief, just like with pension contributions.
Thus, it is better to keep a record of all the donations that you make every year.
If you want to be eligible for Gift Aid, then the income tax you pay must be greater than or equal to the amount recovered by the charity. If you do not need to file a tax return, you can request a P810 form from HMRC for the same objectives.
○ Reduce high-income child benefit tax charge
If a couple is receiving child benefits where one or both partners earn over £50,000 (adjusted net income), they will also be liable to an income tax charge.
For married couples, civil partners, and couples living together with a combined income of more than £50,000, the tax charge will be applied to the person with the higher net income.
For every £100 of adjusted net income exceeding £50,000, a 1% charge is added to the child benefit amount, and the benefit payment is essentially cut to £0 when adjusted income exceeds £60,000.
If you want to reduce your tax charged due to child benefits, you can consider making pension contributions.
3. TAKE FULL ADVANTAGE OF YOUR ALLOWANCES
○ Personal Allowance
You are not required to pay taxes on all of your earnings. Only income exceeding a certain threshold is taxable. Such a threshold is called “personal allowance“, or in other words, tax-free income.
The usual Personal Allowance is £12,570 (this means you don’t have to pay any tax if your income is less than £12,570). By claiming Blind Person’s Allowance or Marriage Allowance, you can boost your personal allowance.
However, personal allowance reduces £2 for every £1 earned over £100,000.
○ Benefit from marriage allowance
The marriage allowance is a tax break for spouses whose combined income is less than the personal allowance. By applying for a Marriage allowance, you or your partner can transfer unused personal allowance to each other (up to £1,250 or roughly 10%). But both you and your partner should be a basic rate taxpayer.
4. CUT YOUR INVESTMENTS TAX BILL
○ Transfer assets to your spouse
If your spouse, wife, or civil partner pays a lower tax rate than you, it may be worthwhile to transfer savings and assets to them. This way, you will not have to pay capital gains tax. Instead, your partner will have to pay the same tax at a lower income tax rate.
○ Junior ISA
You may avoid paying tax on the interest on presents to your children by putting money into a junior ISA. In 2024-25, the yearly allocation for Junior ISAs will be £9,000.
○ Invest in Venture Capital Scheme
When you invest in a Venture Capital Scheme, like EIS/ SEIS, you can claim a percentage of tax back from HMRC. There are few conditions as to the amount and the duration of investment to hold.
○ Share option scheme
If your employer operates an HMRC approved share option scheme, then you can get shares by sacrificing a portion of your income.
5. EMPLOYEE TAX BENEFITS
○ Get a season ticket loan
Some companies may provide you with a tax-free loan to help you purchase your season ticket, possibly saving you hundreds of dollars in transportation costs. Enquire with your employer to see whether they are a part of the program.
○ Claim tax-free childcare
The tax-free childcare plan allows you to claim back up to £500 (or 25% of your childcare expenses) at three-month intervals. You must satisfy specific requirements, such as having a kid under the age of 11 and earning less than £100,000 per year.
Alternatively, your company may be willing to start a childcare pay sacrifice plan. These are simple to implement and may save both employees and companies a lot of money.
○ Get a company car
It may be better to get the cash equivalent in salary rather than taking a corporate automobile in some cases. Not getting a company car might prove to be more tax-efficient.
○ Switch to a low-emission car
Consider getting a low-emissions vehicle if you’re planning to replace your commercial car because these vehicles are now taxed at a lower rate than vehicles with a high CO2 rating, and you will save on ULEZ charges.
