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How you can pay less tax (without going offshore)

The press has been filled recently with the tax avoiding tricks of the rich and famous, sending their money to sunnier shores to reduce what they legally need to pay. Well, for normal folk like you and I who don’t have private jets, the news feels a tad distasteful. We earn a fraction yet still pay our fair share – and with that fund services such as the NHS and schools.

But there are actually a few schemes the government want us to take advantage of that can reduce how much tax we do pay.

Here’s a rundown of a few things to take a look at.

Get tax relief on money you pay into your pension

Most contributions you make to your workplace pension will usually get tax relief. So the more you put into your pension (up until a certain point), the less tax you could be paying. Plus you’ll hopefully get a bigger pension pot when you retire. Nice!

CTA Learn more about tax relief and your workplace pension

https://www.moneyadviceservice.org.uk/en/articles/tax-relief-and-your-workplace-pension

Pay zero tax on your savings interest

There are two ways you can avoid paying tax on your savings. You don’t actually have to do anything for the first one, as in 2016 a Personal Savings Allowance was introduced. The PSA gives every basic rate tax payer a £1,000 a year allowance, which goes down to £500 if you are a higher rate tax payer. This lets you earn that amount in interest before you need to start paying tax.

You can also earn tax-free interest if you keep money in an ISA. You can pay in £20,000 a year into an ISA.

Or, if you’re a low earner – under £11,500 a year – you can use another tax-free savings allowance. This is worth £5,000 a year in interest.

Share 10% of your Personal Allowance with your partner

You don’t start paying income tax until you earn more than £11,500. This is known as the personal allowance. Well, the Marriage Tax Allowance is a tax break for couples who are either married or in a civil partnership. As long as one of you earns less than £11,500 and the other one earns less than £45,000, you can move across 10% of that personal allowance to the higher earner. For this financial year this is worth up to £230, and you can back claim for the last two years too.

Cut what tax you’ll pay when you die

When you die anything you leave behind will likely be subject to Inheritance Tax – but there are ways to reduce how much will need to be paid, including donating to charity and giving out tax-free gifts.

Rent your spare room

You can earn £7,500 a year tax-free if you rent out your spare room. You’ll have to pay tax on anything above this amount though.

Next year we should also see two new tax-allowances for £1,000 each to help people who sell things online or use the sharing economy.

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