How to reduce your self assessment tax bill
If you are a high earner, then you will have to complete a self-assessment tax return each year. By using your allowances and getting good tax advice each year, you can pay less tax and reduce your UK tax bill.
Looking to reduce your tax bill is an essential part of tax planning and achieving your financial goals and objectives.
Make sure you use your annual allowances.
The deadline for completing and paying your self assessment tax bill is the 31st of January. If you miss the deadline, you will face a penalty plus interest on any tax you owe. Here is a brief overview of some of the allowances:
Personal allowance
The Personal Allowance in the UK for the tax year from the 6th of April 23 to the 5th of April 2024 is £12570. This is the income that you do not pay tax on. For example, your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.
Marriage allowance
This tax benefit allows the transfer of £1,260 of the allowance to your husband, wife or civil partner. To benefit as a couple, the lower earner must generally have an income less than the Personal Allowance.
Savings Allowance
Allows most people to earn up to £1,000 each tax year without paying tax on it. This allowance applies to interest from various sources such as bank and building society accounts, savings and other investments.
Dividends allowance
There is a tax-free allowance for dividend income in the UK. The allowance is set at £1,000 for the tax year from the 6th of April 23 to the 5th of April 2024. However, it will be reduced to £500 for the 2024/25 tax year.
Individual Savings Accounts
Individual Savings Accounts are a tax-efficient way of saving. You can save cash or invest in stocks and shares up to an annual allowance without paying tax on the interest you receive on a cash ISA’s or any gains you make on a stocks and shares ISA.
Annual Pension Allowances
You can receive tax relief on personal pension contributions in the UK. The sum of all contributions (personal contributions including tax relief and employer contributions) you can make in a tax year is capped at £60,000 gross for 2023/24. However, if you have not used past tax year allowances, you might be able to pay more.
Venture Capital Trusts
Venture Capital Trusts are investment vehicles that operate in the UK. The funds are tax-efficient and allow investors to access venture capital investments via capital markets. Contributions are eligible for tax relief.
Enterprise Investment Scheme (EIS)
The UK offers a series of tax reliefs to individual investors who buy new shares in a company. If you invest in an EIS-qualifying business, you can access up to 30% in income tax relief.
Charitable donations are a meaningful way to support causes you care about, benefiting those in need and society. Whether aiding vulnerable individuals, funding research, or protecting the environment, your contributions can make a significant difference. Donating to a registered charity in a tax year can reduce your income tax payment.
Seek Advice to reduce your tax bill
Good advice is crucial to maximise your wealth and potential tax savings.
Financial planners are ideally placed to provide planning and advice. They should be able to advise you on inheritance tax, capital gains tax, investments, and pensions.
Understanding changes in tax legislation is vital to avoid penalties and maximise deductions and exemptions. Financial Planners will keep up to date with legislation and the changes that will occur each year.
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