Reducing your tax bill isn’t just about deductions, it’s about making strategic financial decisions that keep more of your hard-earned money in your pocket. Whether you’re self-employed, a business owner, a landlord, or a high earner, our top 10 tips outline practical ways to lower your tax liability while still staying compliant.

Tip 1. Max Your Personal Allowances

Everyone gets a Personal Allowance of £12,570 before income tax applies. If your earnings exceed this, consider:

• ‍Shifting income to a lower-earning spouse (e.g., transferring savings, dividends, or rental income).‍
• Utilising the Marriage Allowance, which lets a lower-earning spouse transfer £1,260 of their Personal Allowance to a higher-earning partner.

Tip 2. Your Pension, Boring But Crucial

Pension contributions are one of the most tax-efficient ways to save for the future while reducing your tax bill. Contributions:

• Receive tax relief at your highest marginal rate (20%, 40%, or 45%).
• Can reduce taxable income, helping to keep you in a lower tax bracket.
• Have an annual allowance of £60,000 (or 100% of earnings, whichever is lower).

High earners need to be aware of tapered pension allowances, so getting professional advice is key.

Tip 3. Invest In ISAs

Investing in an ISA shields your money from income tax, capital gains tax, and dividend tax:

• The annual ISA allowance is £20,000.
• Consider a mix of Cash ISAs, Stocks & Shares ISAs, and Lifetime ISAs.

Tip 4. Claim Those Eligible Business Expenses

If you run a business or are self-employed, you can deduct many expenses before tax is calculated. Common allowable expenses include:

• Office costs (rent, internet, software, stationery).
• Travel costs (fuel, train tickets, business mileage).
• Professional fees (accounting, legal, and financial advice).
• Home office expenses (if working from home).

Tip 5. Eye Up Salary vs. Dividends

If you own a limited company, taking a combination of salary and dividends can be more tax-efficient:

• Dividend tax rates are lower than income tax: 8.75% (basic), 33.75% (higher), 39.35% (additional).
• Keeping your salary within the National Insurance threshold minimises deductions.

Tip 6. Plan For Capital Gains Tax (CGT)

If selling assets like property or shares, use these strategies to reduce CGT:

• Use your CGT allowance (£3,000 for 2025/26).
• Spread disposals across tax years to use multiple allowances.
• Transfer assets to a spouse to benefit from their allowance and lower tax band.

Tip 7. Make Tax-Efficient Charitable Donations

Donating to charity through Gift Aid allows charities to reclaim 25% of your donation from HMRC, and higher-rate taxpayers can claim tax relief.

Example: If you donate £800, it’s worth £1,000 to the charity, and you can claim:

• £200 tax relief if you're a higher-rate taxpayer.
• £250 tax relief if you're an additional-rate taxpayer.

Tip 8. Watch Out for the 60% Tax Trap

If your income is between £100,000 and £125,140, your Personal Allowance is reduced, effectively creating a 60% tax rate. To mitigate this:

• Increase pension contributions.
• Make charitable donations.
• Reduce taxable income via salary sacrifice (e.g., cycle-to-work schemes).

Tip 9. Ahead Of The Game

From April 2027, self-employed individuals earning over £50,000 will need to file quarterly tax updates (Making Tax Digital). Preparing now by switching to cloud accounting software can save time and help you track tax savings throughout the year.

Tip 10. Work with a Tax Specialist

The best way to reduce your tax bill is by proactive tax planning. At Layers Accountancy, we help individuals, self-employed professionals, and business owners legally reduce their tax liabilities while optimising financial strategies.

Get in touch today and find out how much you could save!

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