How To Save Money on Your Taxes Legally

Wednesday, 26th March, 2025

Tax season can often feel overwhelming, but it doesn't have to be. By making the right choices, you can save a significant amount of money on your taxes - legally. Whether you're a self-employed individual, a business owner, or an employee, there are various strategies to reduce your tax bill while staying fully compliant with the law. At Pro Tax Plus, we are committed to helping you understand how to legally minimise your tax liability in the UK. In this blog post, we'll share essential tips on how to save money on your taxes.

1. Make the Most of Tax Allowances and Reliefs

   The UK tax system offers several allowances and reliefs that can help reduce your taxable income. By understanding and utilising these, you can save money on your taxes:

   
   

   - Personal Allowance: For most people, the first £12,570 of your income is tax-free. Ensure you're making the most of this allowance, and if your income is below this amount, you may not owe any income tax at all.

   
   

   - Marriage Allowance: If you're married or in a civil partnership, and one of you earns below the personal allowance threshold, you can transfer a portion of your unused personal allowance to your partner, saving up to £252 a year.

   
   

   - Blind Person Allowance: If you're registered as blind or severely sight-impaired, you may be entitled to an additional allowance.

   
   

   - Gift Aid: Donations to charities can increase your tax-free allowance through Gift Aid, which allows charities to claim back the basic rate of tax on your donation. This can reduce your overall tax bill.

   
   

2. Maximise Pension Contributions

   Contributing to a pension plan not only helps secure your future but also offers a way to reduce your taxable income. Contributions to pensions are eligible for tax relief, meaning the amount you contribute reduces your taxable income.

   
   

   - Personal Pension Contributions: If you contribute to a private pension plan, the government adds tax relief to your contributions. The more you contribute (up to the annual allowance), the lower your taxable income will be.

   
   

   - Employer Pension Contributions: If you're employed, ask your employer if they offer a pension scheme and consider increasing your contributions. Your employer may also match your contributions, which is like getting free money. Contributions are tax-free and reduce your taxable income.

   
   

3. Utilise Capital Gains Tax Allowance

   In the UK, you're allowed to make up to £12,300 in capital gains each tax year without paying tax. This means if you sell assets like shares, property, or investments, and the profits fall within this allowance, you won't owe any tax.

   
   

   - Use the Allowance Every Year: It's important to use the £12,300 annual allowance before the end of the tax year. If you don't, it won't carry over to the next year.

   
   

   - Transfer Assets Between Spouses: If you're married or in a civil partnership, you can transfer assets between each other to take advantage of both individuals' allowances, which can double your tax-free amount.

   
   

4. Claim Business Expenses

   If you are self-employed or run your own business, you're entitled to claim back a wide range of business-related expenses. By deducting these from your income, you can lower your taxable income.

   
   

   - Office Supplies, Equipment, and Software: You can deduct the costs of items you need to run your business, such as computers, printers, and software.

   
   

   - Travel and Subsistence: If you travel for business purposes, you can claim back travel expenses, including mileage, train fares, and even hotel stays for business trips.

   
   

   - Home Office: If you work from home, you can claim a portion of your household expenses, including heating, electricity, and broadband bills. Be sure to keep track of your business-related usage.

   
   

5. Take Advantage of the Dividend Allowance

   If you're a business owner, you might pay yourself through dividends. The UK offers a dividend allowance of £2,000 per year, which is tax-free. This can be a smart way to reduce your overall tax bill, as dividends are taxed at lower rates than income.

   
   

   Dividend Tax Rates: Above the £2,000 allowance, dividends are taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers, which is often more favourable than income tax rates.

   
   

6. Use Tax-Efficient Investments

   The UK government encourages investment in certain schemes by offering tax relief. Consider investing in tax-efficient opportunities such as:

   
   

   - Individual Savings Account (ISAs): You can invest up to £20,000 per year in an ISA, and all income and capital gains earned within the ISA are tax-free. This is a simple and effective way to save on taxes while growing your wealth.

   
   

   - Venture Capital Trusts (VCTs): These offer investors up to 30% income tax relief on investments of up to £200,000 in qualifying companies, and any capital gains are exempt from tax.

   
   

   - Enterprise Investment Scheme (EIS): If you invest in early-stage companies through EIS, you could receive up to 30% tax relief on investments of up to £1 million, and any profits are exempt from capital gains tax.

   
   

7. Keep Track of Your Expenses and Claim What's Yours

   Finally, one of the most important ways to save on taxes is to keep accurate records of all your expenses. Whether you're self-employed, a small business owner, or even an employee with work-related expenses, it's essential to track and claim every deduction you're entitled to.

   
   

   - Keep Detailed Records: Ensure you keep receipts, invoices, and bank statements for all business-related or work-related expenses.

   
   

   - Claim Work Expenses: If you incur expenses that are necessary for your work (such as professional memberships or equipment), you may be able to claim tax relief on them.

Conclusion

Saving money on your taxes legally requires a proactive approach, but with the right strategies and a bit of planning, you can significantly reduce your tax liability. Whether it's maximising tax allowances, contributing to pensions, or utilising tax-efficient investments, Pro Tax Plus is here to help you navigate the complexities of the UK tax system.

For tailored advice and assistance in reducing your tax bill legally, get in touch with Pro Tax Plus today. Our expert accountants are ready to help you take full advantage of available tax-saving opportunities and ensure your finances are working for you.