Ten ways to beat the tax man

How to pay less tax (legally)!

1. Use the new personal savings allowance
Basic-rate taxpayers can earn up to £1,000 tax free in interest from bank or savings accounts and funds which invest in bonds. Those on the higher rate (40%) can earn £500 but additional rate payers get nothing.

2. Free dividends
The first £5,000 (£2,000 from 6 April 2018) you receive in dividends from shares or funds which invest in shares is tax-free. On amounts above this threshold, basic rate taxpayers will owe 7.5% tax, higher rate taxpayers 32.5% and the additional rate is 38.1%.

3. Save into an Isa
Still got some money left? As well as points 1 and 2 above, everyone over 16 can save up to £20,000 this tax year (2018-19) into a cash-based Individual Saving Account (Isa). This protects your money from capital gains tax and any further income tax - you don’t need to declare them on your tax return. If you’re over 18, some or all of the money can be put into investments like shares. Click here for our guide to the different kinds of Isas.

4. Do it for the kids:
All children under 18 can have up to £4,260 saved for them this year (until April 2019) and £4,368 next tax year (2019-20) into a Junior Isa (Jisa). See here for our guide to saving for kids.

5. Put money aside for retirement ...
Pensions are the most tax-efficient way of saving. If you’re a basic rate taxpayer, it will cost you £80 to save £100 into a pension - £60 for a higher rate payer. There are limits on how much you can save, but they are pretty high. Find out more about pensions here.

6. ... but be careful when you cash it in
You can now take your pension money at age 55 and you don’t have to use it to buy an annuity (an income for life). But you only get the first 25% of your fund tax free, the taxman will want his share of the rest if you take it all in cash. See our guide to cashing in pensions here.

7. Spread the capital gains tax
If you make money selling a second home or a sizeable investment, so does the government. This year, you have an allowance of £11,300 (£11,700 from 6 April 2018) in capital gains before you start paying tax. If the proceeds of the sale are likely to be higher, you can use your spouse or civil partner’s allowance too, provided they are a joint owner before the sale.

8. Share your personal income tax allowance (Marriage Allowance)
You've been able to pass on up to £1,190 since 6 April 2018 in unused personal income tax allowance to your spouse or civil partner, provided they are a basic-rate taxpayer. This can also be backdated to include any tax year since 5 April 2015!

9. Give it away
Death and taxes go together, sadly. If you think your estate might be sizeable, consider giving part of it away (cash or assets). It’s then free of inheritance tax as long as you live at least seven years from making the gift. To qualify for this perk, the asset must be fully transferred. You cannot gift your house to your children and continue to live in it, for example.

10. Check the small print
HMRC sometimes can’t keep up with government fiddling or changes in your own work circumstances. You may be paying too much - check your tax code is correct.


More stuff:

  • Financial services shop Hargreaves Lansdown has some useful guides here
  • Money Saving Expert has tax calculators and in-depth information here
  • Find top tips here on tax-saving investments with the Money Advice Service.


Last updated 8 January 2019.