6 clever ways to reduce your tax bill and have more money

If you’ve been following the news, you’ll know that the second half of 2022 has been an interesting time for the UK’s tax rules. In September, former chancellor Kwasi Kwarteng’s mini-Budget introduced a swathe of new tax regulations in a bid to improve the nation’s economy.

It would be fair to say they didn’t achieve this, and it wasn’t long before Mr Kwarteng was replaced by Jeremy Hunt, who went on to reverse almost all of his predecessor’s tax plans. In November, Mr Hunt announced his long-anticipated Autumn Statement, which saw even more changes.

This included extending the freezing of the Income Tax and Inheritance Tax allowances to April 2028, and reducing the additional-rate threshold from £150,000 to £125,140. Furthermore, the Dividend Tax and Capital Gains Tax exempt amounts will also be significantly reduced over the next two tax years.

As a result of these, Sky News reported, millions of Britons could soon be facing higher tax bills. If you’re wondering: “how can I reduce the amount of tax I pay?”, read on to discover six clever ways to make your money more tax-efficient.

1. Use pension contributions

Pensions are not only a way to save for the retirement lifestyle you want, they’re also a very tax-efficient way to put money aside. This is because the government typically gives you tax relief on the money you use to make contributions to your retirement fund.

Because of this, every £100 you place into your pension costs you just £80 if you’re a basic-rate tax payer (2022/23). If you’re a higher-rate taxpayer it will cost just £60, and as an additional-rate taxpayer, you may only pay £55.

While you can contribute as much money as you like into your pension, the amount that receives tax tax-relief is limited to your Annual Allowance. In 2022/23, this is typically the amount you earn or £40,000 a year, whichever is the lower. If you’re a high earner your Annual Allowance may be £4,000. 

Subject to your Annual Allowance, the more you contribute to your pension the more relief you get, which means increasing your contributions could be a very shrewd way to be more tax-efficient. 

2. Consider donating to charity

When you make a donation to a charity using Gift Aid, the charity or sports organisation you’ve donated to is allowed to claim basic-rate tax relief on your donation. As such, if you’re a higher- or additional-rate taxpayer you can also claim the difference as additional tax relief. 

3. Maximise your use of ISAs

While ISAs may not provide immediate tax relief on your cash, they can provide significant benefits over the long-term. This is because they are not liable to Income Tax when you withdraw money from them, or CGT on any increase in value the ISA makes. 

In 2022/23, you can invest a total £20,000 a year into an ISA. 

Placing your cash into a Stocks and Shares ISA could expose it to greater growth potential, which would typically be free of CGT. With this in mind, you might want to consider research by Schroders, which found that between the start of 1952 and the end of May 2022, UK equities returned 11.7% a year on average. Cash returned 6% a year. 

Always remember, past performance is no guarantee of future performance.

4. Use Enterprise Initiative Schemes and Venture Capital Trusts

As Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCTs) support young companies, the government offers tax incentives including a 30% reduction on your Income Tax bill – up to certain limits.

This could help you reduce your liability by up to £300,000 if you invest into an EIS, or up to £60,000 if you place money into a VCT. Furthermore, with VCTs, you could enjoy potential growth that’s CGT-free. 

As VCTs and the EIS are classed as high-risk investments, always speak to a financial planner to ensure they’re right for you.

5. Use Rent-a-Room relief

If you are considering renting a room out in your home to help with the surging cost of living, you could receive up to £7,500 in rent a year tax-free (2022/23). To claim the relief, your home must be fully furnished and you must live in the property as well. 

If you own the property with someone else, you can claim £3,750 each.

6. Use your CGT annual exempt amount

In November’s Autumn Statement, the chancellor revealed he was reducing the CGT annual exempt amount to £6,000 from April 2023, and then to £3,000 the following tax year (2024/25). The good news is that for the remainder of 2022/23, the allowance stays at £12,300.

Thinking strategically about how you dispose of assets could significantly reduce your exposure to CGT. For example, you may want to consider sharing ownership of an assets with your spouse, as this means it would benefit from both of your allowances – effectively doubling it to £24,600.

Any gain above the allowance would then be liable to CGT at between 10-28%, depending on the asset you have sold and your marginal rate of tax.

Get in touch

While the above could help you reduce your tax liabilities, it is not an exhaustive list. As such, a financial planner could identify other ways you could reduce your tax liabilities.

If you would like to discuss how you could reduce your tax bill, please email me on a.douglass@grosvenorconsultancy.co.uk or telephone 01793 766 123, and I’ll be happy to help. Alternatively, call my mobile on 07525 177 046. 

Please note that while I offer high standards of service and ensure any solution I recommend is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

EIS and VCTs are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed. 

Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that’s close to the value of the underlying assets. 

Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.

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