Nobody wants to pay more tax than necessary. Whether you’re employed, self-employed, or earning through a side hustle, here are 10 smart and legal ways to reduce your income tax liability in the UK.
1. Maximise Your Personal Allowance
Every UK taxpayer gets a tax-free personal allowance — £12,570 for the 2024/25 tax year. If your income is below this level, you might be missing out. You can potentially transfer part of your allowance to a spouse (see Marriage Allowance), or shift savings/investment income into your name if you’re part of a couple.
Use our UK tax calculator on TaxGrid to check if you’re making full use of your allowance and estimate your income tax.
2. Use Salary Sacrifice
Swap part of your salary for non-cash benefits like pensions, childcare, or a company bike. This reduces your taxable salary and can save both income tax and National Insurance.
3. Contribute to a Pension
Pension contributions receive tax relief at your marginal rate. Higher-rate taxpayers get 40% relief, which can be a major saving and helps grow your retirement fund at the same time.
4. Claim Marriage Allowance
If you or your spouse earns less than the personal allowance, you may be eligible to transfer £1,260 of allowance and save up to £252 in tax per year.
5. Use the Dividend and Savings Allowances
The dividend allowance (£500 in 2024/25) and savings allowance (£1,000 for basic-rate taxpayers) let you earn tax-free investment income. Make sure your portfolio is structured tax-efficiently.
6. Make Charitable Donations (Gift Aid)
Donating to charity with Gift Aid extends your basic rate band and allows for extra tax relief if you’re a higher-rate taxpayer.
7. Claim Tax-Deductible Expenses
If you’re self-employed, working from home, or even an employee incurring work-related costs, ensure you’re claiming all allowable expenses.
8. Avoid the 60% Tax Trap
Earnings between £100,000–£125,140 result in a marginal rate of 60%. Making pension contributions or donations can help keep your income below this band.
9. Check Your Tax Code
A wrong tax code can mean you’re overpaying. Always review your tax code on your payslip or HMRC online account.
10. Use ISAs for Tax-Free Income
While not directly reducing income tax, ISAs shelter savings and investments from tax on interest, dividends, and capital gains.
Estimate Your Tax with Confidence
Use our UK Self Assessment Calculator 2024–25 to estimate how much tax you owe this year. It factors in your income, personal allowance, pension contributions, and more — helping you plan ahead and avoid surprises.