6 Ways to Reduce Your Tax Bill

26 March 2019

With the end of the 2018/19 Tax Year fast approaching, people often ask us how to reduce their tax liability.

There are various ways in which an individual can help reduce their tax liability and, whilst they are generally considered more at this point in the tax year, they can actually be considered at any time during the tax year.

Personal Allowance – Each person has their own personal allowance, so ensure it is fully utilised. If the income of one spouse/civil partner is low, and the relevant criteria is met, it is possible to transfer £1,190 (for 2018/19) of the personal allowance to your spouse/civil partner.

Pension Contributions – Contributions of up to £3,600 gross per year can be made by individuals with no taxable income. For those with income, they can make larger contributions and potentially gain further tax relief but you will need to take advice.

Charitable Donations – Cash donations to UK registered charities extend the basic rate tax band which in turn increases the amount of income that can be taxed at the basic rate. However, if you have not paid enough tax to cover the tax that the Charity would claim on your donation, you would be required to meet the shortfall.

Tax Efficient Investments – Tax favourable investments such as Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), Social Investment Tax Relief (SITR) and Venture Capital Trusts (VCTs) should be considered. Each has its own rules and annual limits and, where the criteria is met, income tax relief is available ranging from 30% to 50%. Investment returns from Individual Savings Accounts (ISAs) are not subject to income or capital gains tax. There are different types of ISAs that have their own rules.

Capital Gains Tax – Unused annual exemption cannot be carried forward or back to a different tax year and if unused is lost. Each spouse/civil partner is entitled to the exemption so gifts between them prior to the disposal of assets can be effective for tax purposes.

Inheritance Tax – There is a £3,000 annual exemption each tax year that an individual can use to make a gift without any IHT implications. If the previous tax year’s exemption was not used it can also be used but only in the following year. 

Remember this is only a brief overview and full advice must be sought before any action is taken.  You have until 5th April 2019 to consider any changes for the 2018/19 tax year.  

For more about Tax Planning read our Year End Tax Guide.