10 ways to save tax after the budget

·5 min read
10 ways to save tax after the budget
The autumn budget included the biggest tax rise since 1993. Photo: Getty

The autumn budget, announced on Wednesday by UK chancellor Rishi Sunak, included tax rises coming to £16.7bn ($23bn) a year by 2026-27, the biggest tax rise since 1993, according to calculations by the Office for Budget Responsibility (OBR).

By 2026-27, Brits will pay 36.2% of GDP in tax, the highest percentage since the early 1950s, the OBR said.

Taxes will have increased by £3,000 per person since Boris Johnson became prime minister in August 2019, according to separate research by Resolution Foundation.

The chancellor announced that national insurance (NI) payments will go up by 1.25 percentage points in April, and this will then become the health and social care levy a year later. The OBR forecasts in 2025/26 the health and social care levy will cost Brits around £19.3bn a year.

Tax on investments will also rise along with the capital gains tax threshold being frozen, so if you realise more than £12,300 in capital gains in a single year, you will pay tax. By 2025-26 this means Brits will be paying an extra £30m a year, according to the OBR.

Read more: Budget digest: Top takeaways from chancellor Rishi Sunak's speech

The experts at Hargreaves Lansdown share 10 ways to save tax after the budget:

1. Salary sacrifice

This may sound scary but this is one of the best ways to save tax if you are employed. 

Check with your employer to see if they offer a salary sacrifice scheme, to cut income tax and NI. This means you and your employer agree to cut your salary and pay the equivalent into benefits with tax and NI breaks. 

"This includes pensions, pension advice and cycle to work schemes. It means you get the full value of your pay — without any tax or NI taken off — paid directly into your benefits," said Sarah Coles, senior personal finance analyst Hargreaves Lansdown.

2. Charity donations

If you make charity donations and pay a higher rate of tax, you can claim back the additional tax relief through self-assessment.

3. Claim expenses

"If you’re self-employed, make sure you claim for everything you’re entitled to that will bring your tax bill down, including all allowable expenses, pension contributions and charity donations," Coles said.

4. Make use of your ISAs

Tax on investments is on the up. If you make more than £2,000 in dividends outside an ISA, you’ll face tax, and the the rate will be hiked by 1.25 percentage points from April. By 2025-26 this is set to cost Brits £815m a year.

Read more: What Sunak's budget means for household finances

The best way to cut tax on investments is to make use of your ISAs. "The budget didn’t include any changes to the allowances, so you can shelter up to £20,000 a year in an ISA, and all income and growth is completely tax free," say the experts.

5. Pass assets to your spouse

Assets can be passed between spouses without incurring a tax bill, so between you, you can keep up to £40,000 a year in ISAs.

6. Take advantage of your partner's allowances

"If you don’t have enough allowance to hold your entire portfolio in ISAs, income-producing assets can be shared between a married couple, so that both take advantage of their allowances," said Coles.

"The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable."

7. Prioritise income-producing investments within your ISAs

Lots of different types of investment can be held in a stocks and shares ISA, including unit trusts, investment trusts, exchange-traded funds, individual stocks and shares, corporate and government bonds, and OEICs (Open Ended Investment Companies).

"You can prioritise income-producing investments within your ISAs, and growth investments outside them," Coles added.

"This means you can take advantage of the lower rate of tax on growth, and the availability of annual capital gains tax allowances to help you manage the tax bill on gains."

Read more: How the budget will impact property buying and selling

8. Cut down on inheritance tax

Inheritance tax is also set to rise, as the thresholds were frozen in the March budget. By 2025-26 this freeze will cost Brits an extra £445m a year, according to the OBR.

You can cut down inheritance tax by giving your family gifts during your lifetime rather than leaving it all in your will. "Not only does it have tax benefits, it also means you get to see them enjoy their gifts while you’re still around," Coles said.

9. Use your gift allowance

You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your "annual exemption". You can give gifts or money up to £3,000 to one person or split the allowance between several people.

"You can also give small gifts of up to £250, specific gifts for family weddings and unlimited regular gifts from income," Coles added.

Read more: UK faces years of high taxes, warns think tank

10. Potentially exempt transfers

"Outside the gifting allowances, you can make gifts of any size, known as potentially exempt transfers, and as long as you live for at least seven years after handing it over, it falls outside of your estate for inheritance tax purposes. 

"If you pass away before the seven years are up, and your estate is subject to inheritance tax, you will have to pay tax on some of this." 

Watch: What is inheritance tax?

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