Apr 06

5 ways to pay less tax

Reading Time: 5 mins

While most of us have to pay tax in some form, there’s no need to pay any more than you need to. Britons waste billions of pounds every year paying too much tax – but MoneyMagpie will show you five (completely legal) ways to pay less tax.

We’re not talking about tax evasion, which is illegal, but tax avoidance – big difference.

1. Pay less tax on your savings

With ISAs… ISAs are still one of the most effective ways to cut down on paying tax on your savings and investment income. The allowance is now £20,000

Putting as much as you can into either a full shares-based ISA (you can put the whole amount into one of those) or at the very least £5,760 into a cash ISA is the best way to avoid paying tax on your savings.

See if an ISA is right for you here!

Get FREE ISA guides… showing you how to get the most out of your ISA and watch your investment grow. Claim your free copies here

With National Savings Certificates… these are like other bank savings accounts, with the exception that they are backed by HM Treasury, meaning that they offer 100% protection for your money, and also offer tax-free interest. Often their accounts are not especially competitive in comparison to regular savings accounts but, particularly if you are a higher rate tax-payer, they can be useful.

With Premium Bonds… these are tax-free and offer the chance of winning £1 million in a monthly prize draw with a million other prizes from £25 to £100,000 every month. The minimum investment is £100 and each £1 gives you a number, and a chance to win – so £100 is 100 chances effectively.

The chance of winning per £1 unit is 24,000 to 1, so you don’t want to be putting your life savings into them – but someone has to win, so it’s worth giving it a go!


2.  Spread your investments with your spouse

We all have our own income tax and Capital Gains tax thresholds – but if you are married or in a civil partnership you effectively have twice the threshold of a single person. So make the most of it!

If you have savings and investments, then put the majority of them in the name of whichever one of you is the lower taxpayer, as this will reduce your overall tax bill as a couple.

For example, if you put £3,000 of savings in an account paying 5% in the lower taxpayer’s name, you would make £117 per year in interest – as opposed to £103.50 if the money was in a joint account.

Capital Gains Tax (CGT)

Married couples can transfer shares and property between each other without paying CGT. So sharing some of your investments with your spouse will allow you to take advantage of both your CGT allowances.

The transfer must be made as a ‘gift without reservation’, so you must set up a trust. Remember that the new owner has complete control over the investment.

If you’re paying tax on share dividends, transferring the shares to your spouse if they are in a lower tax bracket will also reduce your overall tax bill as a couple.

Put investment property under joint ownership, adding the name of your spouse or partner. You are both entitled to the annual allowance before you pay tax, so you can save quite a bit.


3. Pay into a pension

Yes, pensions are pretty unloved at the moment but they are a great way of reducing the tax you pay to the government. They’re particularly helpful for people paying a higher rate tax. Any money you put into a pension has the tax you would have paid added in to the pot instead. It means your investment grows from the moment you put your money in.

If you’re not happy with conventional pensions consider opening a SIPP (Self Invested Personal Pension). These are rather like a pension ‘bag’ into which you put whatever investments you like (within a list of allowed products). These can include shares, bonds, commercial property and cash.

Get a FREE copy of our Top 10 Tips to improve your pension below.This simple guide shows you easy ways to make your pension work harder – including how to make the most of all the tax advantages.Claim your free copy here

4. Check your eligibility for tax credits

The tax credit system is complicated, but it’s worth persisting because there’s money to be had. And remember, you don’t have to have children to qualify for Working Tax Credits. The best way to check your eligibility is to use HMRC’s short survey here. It only takes a couple of minutes to fill in and it could make a big difference.


5. Make a will and set up trusts

It doesn’t matter how old you are – if you have any family, property or anything of value – you should make a will.

More than half of us die intestate (without having made a will) and the government loves this, because it means they can then help themselves to 40% of your worth before your family and loved ones even get a look in. Not only that but they then give the rest of your cash out according to set rules, not according to who you would like to have the money.

Wills are easy enough to make. In fact you can buy a will pack from places like WH Smith and Tesco and do it yourself, though do bear in mind that the best solution is to get your solicitor to draw one up for you.

Find out more about making a will here.

If your total worth is above the inheritance tax threshold of £325,000 then you will need to make provisions for the rest of the cash to stop the tax man getting his hands on it rather than your relatives. Anything over the threshold will be taxed at 40%.

  • One thing you can do is to give some of your wealth away while you are still alive. Any money or property you give away (and don’t use yourself) at least seven years before you die is free of inheritance tax. So keep that in mind if you have time to plan.
  • If you’re married or in a civil partnership, your spouse/partner does not have to pay inheritance tax on your estate. Not only that but now, when they go, their inheritors will be able to enjoy the combined inheritance tax threshold (currently £650,000). So keep this in mind when planning who gets what and when.
  • You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires.
  • If you are quite well off (and with the value of many properties you really don’t need to be fabulously wealthy to be caught in the inheritance tax net) you should consider a trust or two to protect your inheritors from paying tax. Trusts are complex creatures and you will need to get a good tax accountant or probate specialist to set one up for you. First, though, get it clear in your own mind what trusts are and whether you would really benefit from one by reading this explanation in the HMRC website.



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If the government would spend less on paying lazy people housing benefits, unemployment benefit and other ridiculous hand-outs we would have significantly less tax to pay. We pay 4 times more for these benefits than we do for the entire police, law and justice system. That’s ridiculous. Benefits should gradually decrease over time so as to stop people getting comfortable on them and building their lifestyle around them. Why do we always try to take more from the wealthy who (mostly) work their asses off to make money, so the lazy idiots can sit around and cause social problems for… Read more »

D Wright

Robert, I find your response immature, narrow minded and quite frankly ignorant After being made redundant 2 years ago I receieved both housing benefit and job seekers allowance for just under 6 months. During which as I am sure with many other people receiving these benefits I in no way was able to live comfortably or afford to be lazy, receiving barely enough money to feed myself let alone anything else. While I agree that there are a small minority of claimants who abuse the system. I am confident the majority are by no means “comfortable” and desperately seeking an… Read more »

Steve Hagman
Steve Hagman

Both agree and disaggree on this. There are those that seem to live a cushy lifestyle and get all mod cons, etc whilst living on beneftis and therefore are payments too high? But there are also those who do voluntary work and/or actively seek paid work. I have also read that it is state pensions and related benefits and concessions for senior citizens that costs more than actual “out of work” working age benefits. Would be interesting to see what would happen if all unemployment benefits were withdran though. Would Dept of Work & Pensions staff in jobcentres be re-deployed… Read more »

Steve Jennings
Steve Jennings

5 ways to pay less tax. Paying into a pension! I am now in receipt of a company pension & a smaller second pension for which I am deducted tax on both pensions by HMRC. Any benefits gained whilst contributing into a pension scheme are removed when the time comes to start claiming your pension. I therefore cannot agree with your article “a great way of reducing the tax you pay to the government”. See article below: Yes, pensions are pretty unloved at the moment but they are a great way of reducing the tax you pay to the government.… Read more »

Tax Guy
Tax Guy

I’ve been included in taxations for lengthier then I care to acknowledge, both on the personal side (all my employed lifetime!!) and from a legal standpoint since satisfying the bar and pursuing tax law. I’ve provided a lot of advice and corrected a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please uphold the good work – the more people know the better they’ll be armed to handle with the tax man, and that’s what it’s all about.

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