How to Legally Reduce Your Tax Bill in the UK

Tax avoidance, using allowances and reliefs Parliament designed for the purpose, is completely legal. Tax evasion, hiding income or lying to HMRC, is not. The distinction matters because many people under-claim what they are entitled to out of caution.

Start with your allowances. The personal allowance is £12,570. On top of that, you have a trading allowance of £1,000, a savings interest allowance of £1,000 if you are a basic-rate taxpayer, a dividend allowance of £500, and a capital gains annual exempt amount of £3,000. Each shields a slice of income from tax at no cost, so check you are actually using them.

Put money in the right wrappers. An ISA shelters £20,000 per year from all tax. Pension contributions get tax relief at your marginal rate: a higher-rate taxpayer contributing £10,000 effectively costs only £6,000 after tax relief. Gift Aid donations extend your basic-rate band, which matters if you are a higher-rate payer.

If you are self-employed or run a limited company, claim all allowable business expenses, consider salary-plus-dividend extraction, and make pension contributions through the company for corporation tax relief.