‘I’m a tax expert – five lesser-known tax tips that could save you hundreds in new year’

Britons could save hundreds – or even thousands – of pounds in the new year by executing a few tax efficiency tips, an expert has said.

From utilising tax allowances to claiming back expenses, there a number of ways Britons can retain more of their earnings.

Eamon Shahir, founder of Taxd and former PwC advisor, said: “Tax filing doesn’t need to be difficult or stressful.

“Here are some lesser-known tax tips that could save you hundreds”.

Maximise personal allowances

Mr Shahir said: “Everyone in the UK is entitled to a tax-free income allowance, dividends allowance, capital gains tax allowance, and a savings allowance. It is important to review your overall earnings and income sources to ensure you maximise these allowances first wherever possible.”

There are limits, known as tax-free thresholds, for different types of income, below which people don’t have to pay any tax. For instance, people can typically earn up to £12,570 annually without paying income tax. This is called the Personal Allowance, and it applies to most people.

There is also a Capital Gains Tax allowance. People who sell assets like property (not their main home) or shares and make a profit can keep up to £3,000 of those gains tax-free.

The dividends allowance enables people who own shares and receive payments (dividends) from those shares to keep up to £500 of this income tax-free.

Additionally, people can earn a certain amount of interest on their savings without paying tax. Depending on how much other income a person has, people can earn up to £1,000 in interest from savings without paying tax. For higher earners, this threshold might be reduced to £500 or zero.

Mr Shahir added: “It is important to make sure you use these in full by moving income or perhaps distributing income strategically between you and your spouse.”

Claim all allowable expenses

Many individuals are eligible to claim expenses that relate to their employment or self-employment.

Mr Shahir explained: “This could include travel expenses, for example, if you have to travel to visit clients or temporary workplaces.

“Costs associated with working from home, any training or subscriptions relating to upskilling, qualifications, or bodies you are a member of, and equipment purchases specifically for work are also usually included.

“It will depend on your line of work and position. It is important to research and understand what is allowable for you.”

Pension contributions and charitable giving

Putting money from wages into pensions can be very “tax-efficient,” according to Mr Shahir. He explained: “This is called a salary sacrifice scheme.

“You are essentially reducing your overall taxable salary, therefore, your taxable income is reduced. This could potentially keep you in a lower tax band and reduce your National Insurance contributions, meaning both you and your employer pay less in NI contributions. It can also help preserve your benefits. Keeping your income below certain thresholds can also help preserve means-tested benefits such as Child Benefit.”

By lowering taxable income through salary sacrifice, individuals earning over £60,000 can avoid the High-Income Child Benefit Charge, which gradually reduces the value of Child Benefit.

Those earning between £100,000 and £125,140 gain an even greater advantage because, in this range, they lose their Personal Allowance (£1 for every £2 earned over £100,000), effectively facing a 60% marginal tax rate.

According to Mr Shahir, the maximum benefit is received if a person earns between £100,000 and £125,000 per year. He said: “In this range you will also be losing your tax-free income tax allowance.”

It’s worth noting that pension contributions are subject to the annual allowance, currently capped at £60,000 or 100% of earnings, whichever is lower. Contributions above this limit may incur a tax charge.

Mr Shahir added: “Don’t forget that if you are a higher earner, you can claim a credit through your tax return for any contributions into a SIPP or charity donations made.”

For higher-rate (40%) or additional-rate (45%) taxpayers, pension contributions and charitable donations offer substantial tax relief, making them valuable tools for managing tax efficiently.

Investment reliefs

Each individual has a £20,000 investment and savings allowance through an Individual Savings Account (ISA). Mr Shahir said: “The great thing about ISAs is that any interest or dividends received throughout the year in these accounts are completely tax-free.

“In addition, when you sell any of the shares held within the ISA, these are also free of capital gains tax. Therefore, if you are investing or saving, it is advised to use up your ISA allowance first.

“Don’t forget that if you hold shares outside of an ISA, it might make sense to strategically sell a portion each year and repurchase through an ISA. This will avoid taxes in the long term.”

In addition to the traditional investments people can make through an ISA, Mr Shahir said the UK has an “extremely favourable” early-stage company investment scheme known as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).

The tax expert said: “If you invest in one of the approved start-ups, you can receive up to 50% of your investment back as tax relief right away. Also, when the company sells any profit is tax- free and if the company fails you can claim loss relief.”

The Marriage Allowance

The marriage allowance allows a lower-earning spouse to transfer £1,260 of their Personal Allowance to their partner, saving up to £252 per year.

Mr Shahir said: “This also applies to civil partners and even if the partner is unemployed or receiving a pension. What’s more, the claim can be backdated up to four years – saving over £1,000.”

Mr Shahir added: “With these tax reliefs, taxpayers have the potential to save hundreds or even thousands with a little research.”