How to reduce my tax bill

The significance of tax planning becomes evident as the tax year concludes on April 5th. With the refresh of tax allowances and the risk of losing unused ones, transitioning from one tax year to another offers a chance to optimize your finances and minimize tax expenses.

In this article, We will outline three straightforward strategies to lower your tax liability.

1. Income Tax Allowance

Each individual is entitled to a 'Personal Allowance' of £12,570, where any income within this threshold remains untaxed. This encompasses various income sources such as employment earnings, pension income, rental income, and offshore bond income.

If you haven't utilized your personal allowance yet, explore opportunities to draw income from assets without incurring tax.

If your earnings exceed £100,000, including bonuses, you forfeit your personal allowance. To reclaim this allowance and mitigate tax on bonuses, consider directing them into your pension fund.

2. Personal Savings Allowance

Many individuals are eligible to receive savings interest tax-free:

• For non or basic rate taxpayers, the allowance is up to £1,000 per year.

• Higher rate taxpayers are allowed up to £500 per year.

• Unfortunately, additional rate taxpayers do not receive any tax-free allowance in this regard.

While these amounts may seem modest, it requires substantial savings to generate £500 or £1,000 of interest.

For instance, to earn £1,000 of savings interest at an interest rate of 2.00%, you would need to have £50,000 in savings.

Additionally, it's important to note that each individual is entitled to this allowance. Therefore, if you and your spouse or partner hold savings jointly, both of you can utilize your respective allowances.

3. Marriage Tax Allowance

If you're married or in a civil partnership, you have the option to transfer up to 10% of your personal allowance to your spouse or civil partner. This is one of the primary methods available for married couples to reduce their overall tax burden.

To qualify for this benefit as a couple, the lower-earning partner typically needs to have an income below their personal allowance (£12,570), while the higher-earning spouse or civil partner must have an income below the higher rate tax threshold (£50,270).

By transferring the personal allowance, you can potentially save up to £251 per year in tax.

Here's a pro-tip: You have the opportunity to backdate your application for up to 3 years, resulting in an additional tax saving of £753.