10 ways you can reduce your tax liability as a UK resident taxpayer
1.Take advantage of pension schemes – Pension contributions made through your employment can be deducted from your pay before your wages are taxed (under the net pay arrangement). Alternatively, the government will top-up your pension at the basic rate (20%), commonly known as ‘relief at source’. If you’re a higher or additional rate tax payer, your gross contributions will also extend your basic rate and additional rate bands.
2. Exploit the Marriage Allowance – If you’re married or in a civil partnership, you may be eligible for the marriage allowance. The allowance permits you to relinquish any remaining personal allowance from the lower-earning partner to the higher earner. A maximum of £1,260 can be transferred in 2022-23, however in order to qualify, the higher earner must be a basic-rate taxpayer.
3. Utilise your personal savings allowance – The current tax allowances (2022-23) allow you to earn £1,000 of interest on savings tax-free if you’re a basic-rate taxpayer and £500 if you’re a higher-rate taxpayer. You will only pay tax on interest over these thresholds.
4. Make use of your ISA allowance – All UK residents are entitled to open an individual savings account (ISA) and contribute up to £20,000 each tax year. An ISA is a tax-free savings or investment account shielding your investment from income tax, tax on dividends and capital gains tax.
5. Self Employed: Include all tax-deductible expenses – Working for yourself can be extremely demanding, leaving little or no time to determine which business expenses are tax-deductible. Typical expenses which self-employed individuals usually miss are: Phone costs, mileage allowance and running costs for your home office.
6. Dividend Allowance – Although the dividend allowance was reduced from April 2018, you can still earn up to £2,000 in dividend income tax free.
7. Consider your Capital Gain Allowance – Utilising your capital gain allowance of £12,300 (2022-23 allowance) can save you over £3,000 in capital gains tax. Where you don’t use the allowance in a tax year, it’s lost forever, so it’s important to consider when you come to sell assets (shares, second homes etc)
8. Invest in Enterprise Investment Schemes – If you purchase shares in a qualifying company, you will be able to reduce your tax bill by 30% of the amount invested in that year. The maximum amount you can invest in EIS companies in a tax-year is £1 million, which could result in saving up to £300,000 in income tax.
9. Benefit from the Rent-a-room relief – If you are letting out furnished accommodation in your home, or considering doing so, you can earn up to a threshold of £7,500 per year tax-free.
10. Landlord: Include all tax-deductible expenses – As a landlord, it’s easy to miss some tax-deductible expenses when completing your self-assessment tax return. For an expense to be allowable for tax purposes, it should be incurred wholly and exclusively as a result of renting out your property. Typical expenses which are missed include buildings insurance, accountancy fees, allowable mileage and replacement of domestic goods.
If you require any advice or assistance with UK personal tax, we are here to help. Simply send us an email at the address below or fill in our contact form to arrange a free initial consultation.
Ned Shelton, Director, Sheltons Accountants UK (London), N.Shelton@SheltonsGroup.com