The UK tax year ends in April, which means you only have a few months left to make the most of the year ahead of you. The start of a new UK tax year means you have an opportunity to make the most of your earnings and reduce your tax bill legally.
Amidst the high tax rates, it is easy to get overwhelmed by the tax obligation you have to fulfil. Today, when inflation is already skyrocketing, rising tax rates are highly undesirable. However, there are some legitimate ways you can cut your taxes and save a significant amount of your earnings.
If you are new to the UK tax scene, you can even consult tax specialists like the ones at IBISS & Co. for help on this matter. There are several tax perks out there that can help you save thousands of pounds. Unfortunately, there is a lack of awareness about these tried and tested methods.
This blog will highlight some legal ways to reduce your tax bills. Keep reading to learn more.
1. Use Personal Allowance
Your income includes your salary, rental income, bonuses, and pension. Every person living in the UK has a tax-free allowance of £12,570, also known as a personal allowance. This means that if you are earning any income within this allowance, it won’t be taxed. Therefore, if you haven’t already used the personal allowance, you should look for any assets that you can use to withdraw income from.
If you increase your income, you can use your allowance and reduce your tax bill. For instance, if you are married and have a rental property, you can try to get the property on your name to increase your income and make the most of your tax allowance.
2. Avoid the 60 Per Cent Tax Trap
You need to know more about the personal tax allowance if you want to avoid the 60 per cent tax trap. Your tax allowance will reduce if you earn more than £100,000. For instance, for every £2 you earn above £100,000, £1 of your allowance will be reduced. This is what is referred to as the 60 per cent tax trap.
For example, if your income is £100,000 and you get a bonus of £10,000, the bonus will be taxed at a rate of 60 per cent. You will also need to pay national insurance at a rate of 2 per cent. The best way to avoid this trap is by forgoing your bonus.
3. Use the Capital Gains Tax Allowance
If you make profits by selling assets, you might know about the capital gains tax. But many people don’t know that you can make capital gains of up to £12,300 per year tax-free, using the capital gains tax allowance. Nevertheless, if your profits exceed £12,300, you might have to pay taxes at a rate between 10 and 20 per cent.
Another way to reduce capital gains taxes is if you’re married, you can hold the property jointly. This will double your capital gains allowance (£12,300*2=£24,600).
4. Marriage Tax Allowance
If you’re married, you can reduce your tax bills in various ways. One of the most notable ones is that you can transfer up to 10 per cent of your allowance to your civil partner or spouse.
However, for this to work, you must have an income lower than your tax allowance (£12,500) and your spouse or civil partner must have an income lower than the higher rate tax threshold, which is £50,000. Transferring personal tax allowance between you and your spouse or civil partner can save you up to £250 per year in tax bills.
5. Carry Forward Unused Pension Allowances
Finally, it can be complicated to sacrifice your earnings for your pension, especially if you are a high-income earner. This is due to the tapered pension allowance. It reduces the sum you can sacrifice to your pension to £4,000. If you contribute more than this, you may have to deal with an unexpected tax charge of 45 per cent.
However, you can utilise unused pension allowances from previous years, avoiding tax charges.
Connect with the Professional Tax Advisors at IBISS & CO.
Now that you have learned some legal ways to reduce taxes, it is time to consult with some of the most expert tax advisors on this matter.
IBISS & CO. is one of the most distinguished firms for all types of tax advice. Their team comprises some of the best account anting and tax consultants in London and Walsall. In addition, they offer guidance regarding capital gains tax allowances and reliefs, HMRC tax investigation, and several other tax areas. Their tax advisors are there to assist you every step of the way.
The firm is experienced in all areas of tax planning, helping you legally reduce the tax you must pay.
Furthermore, they have over 20 years of industry experience in accounting services and tax planning, making them one of the most reliable tax consultancy firms.
Take a look at their client testimonials and referrals to see what customers have to say about them. You can also request a free quote right here before you get started.
Get in touch with their tax specialists today for a consultation and tax advice. Alternatively, you can visit their website to learn more about their tax-related services.
About the Author
The author of his blog is a knowledgeable tax specialist with several years of industry experience. They have been associated with IBISS & CO. as a tax consultant for the last few years and have made a significant difference in the team.