As the Autumn Budget fast approaches, AJ Bell has set out six tax tips that could save a higher-rate taxpayer £8,500 over the course of a year.
Sarah Coles, head of personal finance at AJ Bell, said: “Waiting for the Budget to drop can be a nerve-wracking experience, as people worry it might land them with a bigger tax bill in the years to come.
“But rather than just bracing for impact, it’s worth using this opportunity to take some positive steps to save tax, so you’ll be better off regardless and in a stronger position to face whatever the Budget holds in store.”
Pay a lump sum into your pension
Most people can pay up to £60,000 into a pension in the current tax year. AJ Bell says people should consider whether they can boost contributions and shield more of their income from the taxman.
Coles said: “If you get a windfall, such as a bonus or any other kind of lump sum, you could consider paying it into your pension for a tax-efficient boost overnight. You can get tax relief at your highest marginal rate.”
Boost pension contributions
AJ Bell explains that it doesn’t require a windfall to save tax through pension contributions. With any pay rise or job change, someone could ask to pay more into their workplace pension or increase contributions to a private pension, so the tax relief saving builds over time.
Pledging to set aside an extra £100 a month for their pension could save a higher rate taxpayer £600 through tax relief.
Utilise tax-free childcare
This can be put towards childcare or wrap-around care and holiday clubs for children aged 11 and under. For every £8 a parent pays into the childcare account, the government adds another £2 – up to £2,000 per child each year. However, if someone – or their partner – earns more than £100,000 in adjusted net income a year, they cannot claim tax-free childcare.
Coles said: “You can put in up to £2,000 every three months and get £500 from the government each time – so this side of the Budget you could be £500 better off, and over the course of a year you could receive £2,000.”
Use a cash ISA
Currently, everyone has a £20,000 cash ISA allowance, but this is set to drop to £12,000 for those under the age of 65 in April 2027. As such, AJ Bell said it pays “to take as much advantage as makes sense for your finances now.”
Coles commented: “If someone has £20,000 in a Cash ISA paying 4.5% interest after a year, they’d earn £900 in interest. If the interest is paid at the end of a 12-month fix, by using a cash ISA a higher-rate taxpayer would save £160 and an additional-rate taxpayer £405 at the current tax rates, compared with if they held the money in a standard savings account.”
Use a stocks and shares ISA
If someone invested £20,000 outside of an ISA and made 5% for one year before selling up, they wouldn’t bust their £3,000 capital gains tax allowance, says AJ Bell.
CGT savings through investing in an ISA would come to those who had invested for longer and those with larger portfolios. However, AJ Bell said someone could save dividend tax in the first year of investing if they have already used up and invested their £20,000 annual stocks and shares ISA allowance.
Coles explained: “If you made 4% in dividends a year on a £20,000 portfolio, you would have made £800. After the £500 annual allowance, you’d save dividend tax on £300, which for a basic-rate taxpayer would be £32.25, a higher-rate taxpayer £107.25, and an additional-rate taxpayer £118.05.
