How to save tax in the UK

In the UK, there are several types of taxes that individuals and businesses may be required to pay. Some of the most common taxes in the UK include:

1. Income Tax: This is a tax on the income you earn from employment, self-employment, pensions, and investments. The amount of Income Tax you pay depends on your earnings, with different tax rates and allowances for different income bands.
2. National Insurance Contributions (NICs): NICs are contributions made by employees, employers, and self-employed individuals to fund state benefits such as the State Pension and the National Health Service (NHS).
3. Value Added Tax (VAT): This is a tax on the sale of goods and services. VAT is charged at different rates depending on the type of goods or services being sold.
4. Corporation Tax: This is a tax on the profits of UK-based companies and organizations. The current rate of Corporation Tax in the UK is 19%.
5. Capital Gains Tax (CGT): CGT is a tax on the profit made from the sale of assets such as property, shares, and investments.
6. Inheritance Tax (IHT): IHT is a tax on the value of a person’s estate after they die. The current rate of IHT in the UK is 40% on estates over £325,000.
7. Stamp Duty Land Tax (SDLT): This is a tax on the purchase of property or land in England, Wales, and Northern Ireland. The amount of SDLT you pay depends on the value of the property or land.

It is important to understand your tax obligations in the UK and to seek professional advice if necessary to ensure you are paying the correct amount of tax and taking advantage of any available tax-saving opportunities.

However, saving tax in the UK is an important aspect of financial planning. There are several ways to save tax in the UK, and in this article, we will explore some of the most effective methods.

1. Utilize ISA allowance: Individual Savings Accounts (ISAs) are a tax-efficient way to save and invest money. There are two types of ISAs: cash ISAs and stocks and shares ISAs. With a cash ISA, you can save up to £20,000 per year tax-free. With a stocks and shares ISA, you can invest up to £20,000 per year in a range of investments such as shares, bonds, and funds. Any gains or interest earned on your ISA investments are tax-free, making ISAs a popular tax-saving option for many people.
2. Contribute to a pension: Contributing to a pension scheme is a great way to save tax in the UK. The government provides tax relief on pension contributions, which means that the amount you contribute to your pension is deducted from your taxable income. This can reduce your tax liability and help you save money. For example, if you are a basic rate taxpayer and contribute £1,000 to your pension, the government will add an extra £250 in tax relief, increasing the total amount in your pension pot to £1,250. For higher rate taxpayers, the tax relief is even more generous, with an extra £500 added to a £1,000 contribution.
3. Claim tax reliefs: There are various tax reliefs available that can help you save money on your tax bill. Some of the most common tax reliefs include:

• Marriage allowance: If you are married or in a civil partnership and one of you earns less than the personal allowance, you may be eligible for the marriage allowance. This allows the lower earner to transfer up to 10% of their personal allowance to their partner, reducing their tax bill by up to £250 per year.
• Blind person’s allowance: If you are registered as blind, you may be eligible for the blind person’s allowance. This allows you to reduce your tax bill by up to £2,520 per year.
• Charitable donations relief: If you make charitable donations, you may be eligible for tax relief. This allows you to reduce your tax bill by the amount you have donated, up to a certain limit.

4. Use capital gains tax allowances: Capital gains tax (CGT) is charged on the profit made from the sale of assets such as property, shares, and investments. However, you can use your CGT allowance (£12,300 for the 2021/22 tax year) to reduce your CGT liability. For example, if you sell an asset for a profit of £15,000, you will only be taxed on the £2,700 above your CGT allowance.
5. Invest in Enterprise Investment Schemes (EIS): EIS investments offer tax relief of up to 30% on the amount invested. Any returns on the investment are also tax-free. This makes EIS investments a popular option for those looking to save tax and invest in start-ups and early-stage companies.
6. Use the Rent-a-Room scheme: If you rent out a room in your home, you can earn up to £7,500 a year tax-free under the Rent-a-Room scheme. This is a great way to earn extra income without having to pay taxes on it.

7. Consider salary sacrifice: Salary sacrifice involves giving up part of your salary in exchange for non-cash benefits such as a company car, childcare vouchers, or a cycle-to-work scheme. This can reduce your taxable income and save you money on taxes.