5 Ways to Reduce Your Tax Bill Legally

Paying less tax isn't about loopholes — there are several fully legitimate, HMRC-approved ways to reduce your tax liability that many people simply aren't aware of. Here are five of the most effective.

1. Maximise pension contributions

Pension contributions attract tax relief at your marginal rate — a higher rate taxpayer effectively gets 40p back for every £1 contributed. The annual allowance is currently £60,000 per year. For limited company directors, employer pension contributions also reduce Corporation Tax.

2. Claim all allowable expenses

Common expenses often missed include use of home as office, business mileage (45p per mile for the first 10,000 miles), professional subscriptions, training costs, accountancy fees, and business phone and broadband costs. Keeping accurate records throughout the year is essential.

3. Use the dividend/salary combination

If you operate through a limited company, a combination of a small salary and dividends is typically more tax-efficient than a large salary. Dividends are not subject to National Insurance and are taxed at lower rates — 8.75% for basic rate taxpayers and 33.75% for higher rate. The optimal salary for 2025/26 is usually around £9,100 (the Secondary Threshold).

4. Use the CGT annual exempt amount

Every individual has a Capital Gains Tax exempt amount of £3,000 for 2025/26. Married couples and civil partners each have their own allowance — £6,000 combined can be realised tax-free each year. Planning disposals carefully around the tax year end can make a significant difference.

5. Make use of the Marriage Allowance

If one partner earns below £12,570 and the other is a basic rate taxpayer, the lower earner can transfer up to £1,260 of their Personal Allowance — saving up to £252 per year. This can be backdated up to four years.

Tax planning with White & Co Accountants

At White & Co Accountants in Sutton Coldfield, tax planning is something we consider for every client throughout the year — not just at year end. We review your position proactively and make sure you're only paying what you need to.