You’re probably thinking to yourself, “This is too good to be true.” That’s all right. That’s what I’d think as well! Nonetheless, there are perfectly legal ways for people to reorganise their finances and pay less tax. Let’s take a look at some strategies to save reduce your tax bill.
Depending on your tax rate, most payments to employment pensions should be tax deductible. As a result, 20 percent should be added automatically at source, meaning you only pay £80 for every £100 you put into your pension. If you pay a higher rate of tax (40 percent), you may be able to get this money back.
As a result, the more money you put into your pension (up to a certain point), the less tax you may have to pay. Plus, when you retire, you’ll most likely have a larger pension pile, which is always a nice thing!
You don’t have to pay income tax until you earn £12,500 or more. The Personal Allowance is what it’s called. Expect the sum to climb with each passing tax year as the administration is keen to boost it even higher. If you make this much or less and are married, you can give your partner a portion of your tax-free allowance.
The Marriage Tax Allowance is what it’s called. Couples who are married or in a civil partnership are eligible for this. If one of you earns less than £11,850 and the other earns less than £46,350, you can transfer up to £238 from the lower earner’s personal allowance to the higher earner. You can also make a claim for the previous three tax years.
If you rent out your extra room, you can earn £7,500 per year tax-free. If you earn more than this, you will be required to pay tax.
For example, if you earn less than £1000 on eBay in a tax year, you are not regarded to have earned any money. Gambling winnings are also not considered taxable income. This isn’t to say you should throw your money away. Instead, consider matched betting, which allows you to earn money without taking any risks by taking advantage of incentives from bookmakers. Many people make a full-time living this way, and none of it is taxable.
Finally, if you require income via a directorship, it may count as a dividend. And if it does, this means it can be submitted as such, thus only attracting a 7% tax rate, rather than the 20% or more that normal income would.