10 Smart Tax Planning Strategies to Legally Reduce Your UK Tax Bill

The more we earn, the more tax we pay. Often, it feels like only the super-rich can reduce their tax bills. However, there are simple and legitimate ways for individuals and business owners to lower their tax liabilities.

A financial planner does more than just meet with you once a year—they help you build a long-term strategy that aligns with your goals while ensuring you take full advantage of available tax allowances as you save and in retirement.

What Is Tax Planning and Why Is It Essential?

Stealth taxes—from capital gains and dividend taxes to inheritance taxes—can catch many people off guard. Yet, many taxpayers miss legitimate opportunities to reduce their tax burdens.

For instance, investing within an ISA allows for tax-free growth and income. Employers can also reduce corporate tax through pension contributions.

At Ifamax Wealth Management, we work with businesses, families, and individuals to help them maximise their tax allowances as part of a comprehensive financial planning service.

Maximise Your Personal Allowance

One of the simplest tax-saving strategies is utilising the Marriage Tax Allowance. If one spouse earns below the £12,570 personal allowance threshold, they may be able to transfer up to £1,260 of their unused allowance to their partner, reducing overall tax liability.

For business owners, deciding whether to pay yourself through salary or dividends can significantly impact your tax efficiency. Consulting with a financial planner can help you determine the most tax-efficient way to receive income.

Utilise Your ISA Allowance

With capital gains tax (CGT) applied to assets sold outside of pensions and ISAs, maximising your £20,000 annual ISA allowance is a tax-efficient way to grow your wealth.

Different ISA options include:

  • Lifetime ISA (LISA) – Available to individuals aged 18-40, allowing up to £4,000 per year, with a 25% government contribution bonus.

  • Cash & Stocks and Shares ISA – Offers up to £20,000 tax-free savings and investment growth.

  • Junior ISA – For children under 18, with an annual limit of £9,000.

Make the Most of Pension Contributions

Pensions remain a highly tax-efficient way to save for retirement:

  • Personal contributions receive tax relief at your marginal tax rate.

  • Contributions automatically receive basic rate tax relief at the investment point, with additional relief claimable via self-assessment.

  • You can carry forward unused allowances from the past three tax years, potentially increasing your contributions while benefiting from tax relief.

  • Employers can contribute to pensions and offset these payments against corporation tax.

Use Tax-Efficient Investments (EIS, VCT, SEIS)

Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT), and Seed Enterprise Investment Schemes (SEIS) provide opportunities for tax relief (dependent on the specific product), including:

  • Income tax relief

  • Capital gains tax deferral or exemption

These investments are generally used once other tax allowances have been fully utilised and can be an effective way to diversify your portfolio.

Claim All Available Tax Deductions & Reliefs

Many people miss valuable tax relief opportunities. Some key reliefs include:

  • Gift Aid – Higher-rate taxpayers can claim additional tax relief when making charitable donations.

  • Marriage Allowance – Allows lower-earning spouses to transfer some of their tax-free allowance.

  • Self-Employed Tax Deductions – Business-related expenses can often be deducted from taxable income.

At Ifamax Wealth Management, we work closely with our clients to ensure they are fully taking advantage of available tax reliefs.

Reduce Inheritance Tax with Estate Planning

With the Inheritance Tax (IHT) threshold fixed at £325,000 and an additional £175,000 residence nil-rate band, estates above £500,000 for individuals (or £1 million for married couples) are taxed at 40%.

Strategies to reduce IHT include:

  • Regular gifting (taking advantage of annual gift exemptions).

  • Setting up trusts to pass on wealth tax-efficiently.

  • Life insurance policies are written in trust to cover IHT liabilities.

With potential pension taxation changes in 2027, estate planning has become more complex, making expert financial advice crucial.

Take Advantage of Capital Gains Tax (CGT) Allowance

CGT allowances have been significantly reduced:

  • 2024-25 allowance: £3,000 for individuals, £1,500 for trusts.

  • Previously £12,300 for individuals and £6,150 for trusts (2022-23).

Since CGT rates have increased on gains exceeding the allowance, careful planning—such as using ISAs, pensions, and staggered disposals—is essential for tax efficiency.

Salary vs Dividends: Tax-Efficient Ways to Get Paid

For company directors, deciding between salary and dividends affects tax efficiency. Key tax considerations include:

  • Income Tax on Salary (England, Wales, Northern Ireland):

    • 20% (basic rate) – £12,571 to £50,270

    • 40% (higher rate) – £50,271 to £125,140

    • 45% (additional rate) – Above £125,140

  • National Insurance Contributions (NICs) for 2024-25:

    • 8% on salary between £12,570 and £50,270

    • 2% above £50,270

    • 13.8% employer NICs on salary over £9,100

Dividend Tax Rates (2024-25)

  • 0% allowance reduced to £500

  • 8.75% (basic rate)

  • 33.75% (higher rate)

  • 39.35% (additional rate)

A tailored approach—balancing salary and dividends—can help business owners minimise tax liabilities while optimising income.

Seek Professional Tax Advice to Maximise Savings

At Ifamax Wealth Management, we work with businesses, families, and individuals to optimise tax planning strategies. Collaborating with accountants and solicitors, we ensure our clients make the most of available tax allowances and reliefs.

Tax laws change frequently, so seeking professional guidance can significantly affect your financial outcomes. Contact us today to start planning for a secure and comfortable future.

Risk warning

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.  

Ashton Chritchlow