Paul Lewis: 6 ways to reduce your tax bill
As the new tax year approaches, our money expert has some simple ways to help reduce your bill.
As the new tax year approaches, our money expert has some simple ways to help reduce your bill.
Happy new year. Yes, I know it’s March but the new year used to begin on the 25th of this month, and the shadow of that ancient date is still found in the start of our tax year a few days later on 6th April.
So, March is the ideal time to get all those new tax year tasks done, because you still have a month to sort them out!
Start with ISAs (Individual Savings Accounts). You can put up to £20,000 into an ISA each tax year, so if you haven’t used up your allocation this year – which ends on 5 April – and have some money saved or invested that's not in an ISA, move it this month.
You can have cash or shares in ISAs, and every penny they earn in interest, dividends or growth is free of tax. You don’t even have to declare it to the Inland Revenue.
The total amount that over-65s can put into ISAs will be £20,000 per tax year for the foreseeable future. So, on 6 April your £20,000 allowance begins again. However, from April 2027 people under 65 will not be allowed to put more than £12,000 a tax year into a cash ISA.
If you have shares that are not in an ISA, it’s particularly important to get them in one now, because from April the tax charged on dividends will rise. Basic-rate tax will rise from 8.75% to 10.75%, and the higher rate from 37.75% to 39.75%. The first £500 of dividends in the year will be tax-free, but the rise in the tax rates will add £20 to the tax on £1,000 of dividends above that. Put them in an ISA to avoid all tax. You do that by selling them and then buying them back inside an ISA. If you sell them for a profit of more than £3,000, you may have to pay capital gains tax on it.
If you are not yet 75 and are working or self-employed, you can put money into a Self-Invested Personal Pension or SIPP. Every £100 you put in is boosted by £25 from the Chancellor, and if you pay higher rates of tax it will reduce your tax bill too.
If you are over 55, you can take 25% out tax-free, leaving the rest to grow tax-free for when you need it.
Even if you don’t work, you can still put up to £2,880 into a pension each tax year, and that will be boosted to £3,600 by the Chancellor. But in the tax year you reach 75, no more can go in.
Tax codes are a way of collecting tax, not of assessing it. They can be wrong, so check the tax that has been deducted from your earnings or pension in 2025/26, and make sure it seems correct. If you got a winter fuel payment in November or December and your annual income this tax year will be over £35,000, then from April HMRC will take it back each month from your earnings or pension by cutting your tax code.
Check this year’s tax code now – you may have been sent a letter about it, or you can do it online via your gov.uk tax account – and check after April that the calculation has been done correctly.
If you opted out of getting the winter fuel payment – as more than 50,000 people did – it’s worth checking that the deduction is not being made! Go to gov.uk and search ‘check your tax code’.
I’ve just been through all my credit cards and bank statements to check those regular payments that come out every month or year. It was quite a shock when I added them all up!
One of them I didn’t recognise, so I told my bank to stop it, as banks must do. Many of us have signed up to something thinking it’s a one-off payment, only to find that we didn't read the small print and it’s a regular commitment.
So, it’s definitely worth delving into your bank and credit card statements to make sure every payment is one you want. It’s also a good time to review the ones you do recognise and ask yourself if you really need them. Read more at Paul Lewis (search for ‘payments racket’).
If you’re married and only one of you pays income tax (but not at the higher rates), then the one who doesn’t should transfer some of their personal allowance to their spouse (or civil partner).
You can transfer £1,260, which means they’ll pay £252 a year less tax, and you can go back four years to 2021/22 and get a cheque from HMRC for £1,008! Go to gov.uk and search ‘marriage allowance’ or call 0300 200 3300.
If you or partner was born before 6 April 1935, you can claim the much more valuable Married Couple’s Allowance.
My final spring tax tip is to marry the one you love! A nice spring wedding or civil partnership can be done for a couple of hundred pounds at the Register Office (you will need to find two witnesses).
Then remake your wills (outside Scotland, they become invalid if you don’t) and leave all your stuff to your new spouse, to avoid Inheritance Tax (IHT) when the first of you dies. When the survivor dies, the heirs will get double the normal IHT allowances, so it’s win-win!
You can give money away totalling £3,000 in each tax year without it coming into the IHT arithmetic at all. If you gave nothing last tax year, you’ll get double the allowance this tax year.
Couples get that amount each. And if you have spare income, you can give it regularly to someone without worrying about inheritance tax.
Read more about inheritance tax exemptions from the experts at Saga Money.
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