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Four tax saving tips to help you save money

We take a look at four tax saving tips to help you save money.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

There’s not a lot of things to be certain of at the moment. The effects of coronavirus has not only shaken the market, but also increased doubts over finances, health and even employment.

But there’s one thing we can still be sure of – how to save tax. Here’s four tips which could leave you hundreds of pounds better off and help you to reduce your tax bill.

Remember this article isn’t personal advice. Tax rules can change and any benefits will depend on your circumstances.

1. Pay into a pension – and get a helping hand from the government

Paying into a pension is the most tax efficient way to save for retirement and your long term goals. For anything you pay into a pension the government will also cover 20% of your contribution to encourage you to save more for the future. This is known as basic-rate tax relief and any UK resident under the age of 75 is entitled to it. Say you wanted to make a contribution of £100 into your pension, you’d only actually need to pay in £80 and the government will pay the rest.

If you pay tax at a higher rate you could claim back up to a further 26% through your tax return. You can pay in as much as you earn into your pension but there’s a cap of £40,000 this tax year for most people. If you’re a non-tax payer you can still pay in up to £2,880 this tax year and benefit from 20% tax relief on top. Remember, money in a pension can normally only be accessed from age 55 (57 from 2028).

Learn more about tax relief

Thanks to auto-enrolment, your employer is also required to help you save for retirement. In most cases, employers must automatically enrol their employees and pay into a pension on their behalf. You will usually need to pay in a small portion of your salary too. If you pay in 5% of your salary your employer must pay in at least 3%. Plus you’ll receive tax relief on these contributions.

2. Claim for the little things

On 23 March 2020 the UK was told to stay at home to help tackle the spread of the coronavirus. For many people this has meant that they’re required to work from home. If this applies to you, you can claim back tax on additional home expenses. For instance if your heating or electricity bills have gone up as a result of home working, then you’re probably entitled to some money.

Your employer could decide to pay you an extra £6 a week (£26 a month) tax free to cover your additional costs if you have to work from home. But, if like many businesses they’re struggling, you could decide to claim back tax relief on the £6 of income from HMRC directly.

How to claim tax relief for your expenses

3. Hold investments in a Stocks and Shares ISA

Like a pension, ISAs allow you to shelter your cash and investments from UK income and capital gains tax. It will also be protected from any future tax rises.

Whether you’re employed, retired or in between work, using your ISA allowance is always a sensible idea if you can. The more money you can shelter away from tax, the harder it can work for you. This tax year you can shelter up to £20,000 in an ISA.

Anything you withdraw from an ISA is completely tax free, and you can take money whenever you need to. Remember though, investing should only be considered for five years or more. Investing in a Stocks and Shares ISA increases the potential for long term growth compared to saving in a cash ISA. However unlike cash, the value of investments goes up and down so you could get back less than you invest.

More on Stocks and Shares ISAs

4. Look into applying for Marriage Allowance

Over the past few months some people have taken a cut in earnings. For couples who’ve experienced a drop in income it’s sensible to find out if you can apply for marriage allowance. It’s available if you’re married or in a civil partnership and it could mean you end up saving up to £250 this year in tax.

If one of you has lost their job, or had a reduction in hours which now means you’re a non-tax payer, the marriage allowance could really help. It lets you give 10% of your personal allowance (the amount you’re allowed to earn before paying tax) to your spouse in the current tax year. But your partner must be a basic-rate tax payer (20%) to benefit.

To put this into context, let’s say you’re a non-tax payer earning £10,000 and your spouse is a basic-rate tax payer earning £20,000. Their taxable income would be £7,500 (as the first £12,500 is tax free).

If you claim marriage allowance you could transfer £1,250 of your personal allowance to your spouse. Your personal allowance becomes £11,250 and your spouse gets a ‘tax credit’ on £1,250 of their taxable income.

This means your spouse will only pay tax on £6,250. As a couple you benefit, because you’d only pay income tax on £6,250 rather than £7,500, which saves you £250.

How to claim marriage allowance


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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