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Are there legitimate ways to reduce tax?

There are lots of legitimate ways to reduce tax. Another way of describing this is being more tax efficient. It’s a method of reducing the tax you pay through tax reliefs and other schemes. 

Be aware, that this is not the same as tax evasion. Tax evasion is illegal – and you will be pursued and shamed by HMRC if you involve yourself in it.

Speaking of, here are the top 6 towns and cities in the UK that were most guilty of tax evasion in 2020.

What are legitimate ways to reduce tax?

First of all, it’s worth getting to know the reliefs that you’re entitled to. There are actually loads that you can make the most of, whether you’re employed or self-employed. 

Here’s a list of just a few to look into:

  • The Marriage Allowance
  • Pay into a pension
  • Tax-free childcare scheme
  • Claim back business expenses
  • Dividend Allowance
  • Capital Gains Allowance
  • Tax relief of charitable donations
  • Buy shares through your company
  • Look into VCTs
  • Tax relief on buy to let mortgages
  • Cycle to Work scheme
  • Get a company car
  • Sacrifice part of your salary for equivalent benefits (e.g. medical insurance)

I’m a high earner – what can I do?

When you earn over £100,000, you fall into a tax trap. You end up paying 60% tax because you gradually become ineligible for the tax-free Personal Allowance. 

But there are actions you can take to avoid this super-high taxation:

  1. Save more into your pension
  2. Ask for a non-cash (rather than cash) bonus
  3. Invest in a startup

Read more about how to avoid the 60% tax for high earners.

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