Tax Strategies: Saving Money on Your UK Taxes
When it comes to personal finance, tax strategies might not seem the most exciting topic, but getting them right can make a big difference to your disposable income and future financial security. For readers across the UK, understanding tax-saving tactics is essential—whether you’re an employee, a small business owner, or just keen to make your money go further.
In this guide, we’ll walk through what tax strategies are, how you can use them to save money, and the practical steps you need to get started.
What Are Tax Strategies—And Why Should You Care?
In simple terms, tax strategies are legal methods you can use to reduce the amount of tax you owe or to optimise your finances so you make the most of the UK tax system. From using your personal allowances to claiming reliefs and making wise investment decisions, planning your taxes can help you:
Keep more of your hard-earned income
Increase investment returns
Prepare for retirement
Avoid expensive tax mistakes
Even if you think your finances aren’t complicated, ignoring tax planning is a missed opportunity. Here’s how you can get started.
Step 1: Understand Your Tax Situation
Before looking at savings and tactics, you need to know what your current tax situation is. Start by:
Checking your tax code: Your tax code determines how much tax is taken from your salary. If it’s incorrect, you could be paying too much or too little. HMRC explains tax codes here.
Calculating your total taxable income: This includes earnings from your job, self-employment, savings interest, dividends, rental income, and other sources.
Identifying which taxes apply to you: Common UK taxes include Income Tax, National Insurance, Capital Gains Tax, Dividend Tax, and Inheritance Tax.
Tip: HMRC’s Income Tax calculator is a great starting point if you want to estimate your bill.
Step 2: Make the Most of Personal Allowances and Tax Bands
Everyone in the UK gets certain tax-free allowances. Using these to their fullest is the backbone of any good tax strategy:
Personal Allowance
For 2024/25, the Personal Allowance is £12,570. Income below this is tax-free.
Earnings above this are taxed in bands (Basic, Higher, and Additional Rate).
Marriage Allowance
If you earn below the Personal Allowance and your spouse is a basic rate taxpayer, you may be able to transfer part of your allowance to them, saving up to £252/year. Check eligibility here. Read more about finances for couples.
Other Tax-Free Allowances
Savings Allowance: Up to £1,000 of savings interest tax-free (£500 for higher-rate taxpayers).
Dividend Allowance: First £500 of dividend income is tax-free.
Trading Allowance: First £1,000 of self-employed or casual income is tax-free.
Practical Example:
Sarah earns £11,000 a year and makes £700 teaching music lessons. Because her total income is below her Personal Allowance plus the Trading Allowance, she pays no tax.
Step 3: Use ISAs to Protect Your Savings and Investments
Individual Savings Accounts (ISAs) are one of the most powerful tools in your tax strategy arsenal. ISAs allow your savings and investment returns to grow tax-free.
You can save up to £20,000 a year in ISAs (2024/25 limit).
Options include Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs (for first homes or retirement), and Innovative Finance ISAs.
Tip: Even if you have a small amount to invest, an ISA can shield future gains from tax.
Step 4: Take Advantage of Pension Tax Relief
Pensions offer not only future security but also generous tax reliefs:
Personal pension contributions get tax relief at your marginal rate—meaning for every £80 you contribute, £100 goes into your pension if you’re a basic-rate taxpayer.
Employer pensions (such as a workplace scheme) often include both employer contributions and tax relief.
Higher-rate (40%) and additional-rate (45%) taxpayers can claim extra relief on their self-assessment tax returns.
Practical Example:
If you earn £50,000 and contribute £4,000 to your personal pension, HMRC adds £1,000. You can claim back an extra £1,000 via your tax return if you’re a higher-rate taxpayer—making your total pot grow by £5,000 for a £3,000 net outlay.
Step 5: Make Charitable Donations Tax-Efficiently
Charitable giving can reduce your tax bill if done correctly:
Gift Aid donations: If you’re a UK taxpayer, charities can claim back 25p for every £1 you give.
Higher-rate taxpayers: You can reclaim the difference between basic and higher rate on donations via your tax return.
Tip: Always tick the Gift Aid box and keep records of your donations for your own tax return.
Read this article if you are considering philanthropy on your personal finance journey.
Step 6: Plan for Capital Gains and Inheritance
It’s not just income you’re taxed on:
Capital Gains Tax (CGT)
You pay tax on profits from selling assets (e.g., shares, investment property).
The CGT allowance for 2024/25 is £3,000.
Couples can use both allowances to double their tax-free gains.
Inheritance Tax (IHT) (click the link to read more)
Estates worth more than £325,000 are subject to IHT.
There are strategies to reduce IHT, such as gifting while alive, using trusts, or leaving your home to children/grandchildren (raising the threshold to £500,000 in some cases).
Seek advice for complex estates. HMRC’s guide to Inheritance Tax is a good resource.
Step 7: Claim All Allowable Expenses and Tax Reliefs
If you’re self-employed, a landlord, or have work-related expenses, claiming allowable costs is key:
Self-employed: Deduct costs like office supplies, travel, some professional fees, or a portion of your home utilities.
Employees: If you pay for expenses your employer doesn’t reimburse (e.g., work uniforms, professional fees), you may be able to claim tax relief.
Landlords: You can deduct expenses such as letting agent fees, mortgage interest, repairs, council tax, and more.
Resources: The GOV.UK site details allowable expenses for various circumstances.
Step 8: Stay Organised and Up to Date
Having a great strategy is pointless if missed deadlines or poor records trip you up.
Keep paperwork organised: Save P60s, P45s, payslips, pension statements, investment summaries, and receipts.
Set reminders: Self Assessment tax return deadline is 31 January. Paperwork for PAYE employees is often finalised by 31 May.
Check the rules annually: Tax allowances, rates, and reliefs change. Bookmark GOV.UK’s tax section for updates.
Conclusion: Your Next Steps for Better UK Tax Planning
Getting on top of your UK tax strategies isn’t about dodging your responsibilities—it’s about using all the legitimate tools at your disposal to keep more of what you earn and invest for your future. Start with the basics: maximise your free allowances, open ISAs and pension accounts, and claim every relief you’re entitled to.
If you have a more complex situation—large investment gains, self-employment, or significant inheritance planning—it’s worth seeking advice from a qualified accountant or tax adviser.
Start today: review your current tax set-up, set calendar reminders, and plan your next move. And remember, the money you save today can help build a brighter financial future tomorrow.
