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Five ways to cut your tax bill in 2019

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Written by: Danielle Levy
11/02/2019
As close to 50% of people predict tax hikes over the next two years, here are five ways to cut your tax bill in 2019...

According to a study carried out by Opinium on behalf of Hargraves Lansdown, a quarter of a sample of 2,008 people expect to see taxes rise over the next 12 months.

“There may well be good reason for these concerns: last year the head of the Institute of Fiscal studies said we could see 20 years of tax rises to pay for the government’s current spending commitments – unless we have a surge of economic growth,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“The only big announcement we’ve had so far about taxes after April is news that the personal allowance and higher rate income tax threshold will rise in April – which is great news. But don’t be fooled, your tax bill is very likely to rise,” she added.

Although the personal allowance rose in 2018, the public paid almost £3bn more in income tax than a year earlier, Coles noted. This is because higher wages equate to a larger tax bill.

Even if your income tax bill falls as a result of cuts after April, Coles said these savings can easily be eaten up by higher council tax, VAT, fuel and other duties for basic rate taxpayers.

“Higher rate taxpayers may be marginally better off, but their saving is dramatically reduced by a rise in the threshold at which National Insurance falls. And because they typically live in bigger houses and spend more, it’s likely to be swallowed up by other taxes too,” she added.

With this in mind, she says the only way to cut your tax bill is to take advantage of schemes that are specifically designed to stop you from paying unnecessary tax.

“Taking full advantage of your ISA and pension allowance alone can slice thousands of pounds off a tax bill, while clever use of things like salary sacrifice and exemptions for spouses can slash thousands more,” Coles explained.

How to cut your tax bill

Here are five ways to lower your tax bill in 2019, according to Hargreaves Lansdown:

1. Use your ISA allowance

In an effort to encourage saving and investing, the government offers the chance to squirrel away £20,000 in this tax year – and protect this money from tax forever. If you don’t use it, you’ll lose it, so it’s worth putting away whatever you can afford before April.

If you’re saving to buy a first property, are aged 18-39, and have at least a year until you plan to buy, you should consider a Lifetime ISA, because in addition to tax free growth, you get a 25% bonus on contributions. You can save or invest £4,000 this tax year and get a bonus of up to £1,000.

Don’t forget Junior ISAs too. In the current tax year, you can save or invest £4,260 in a Junior ISA for any qualifying child, and all interest, dividends or capital gains are tax-free. The money is tied up until they reach 18 – at which point they will have a useful nest egg to start their adult life

2. Pensions

Each year most people have a pension allowance of £40,000 or their total earnings – whichever is lower. Even non-earners have an allowance of £3,600. It means you can contribute tax-efficiently to a pension on behalf of a child. Contributions to pensions attract tax relief at your highest marginal rate, and the first 25% taken from the pension is usually tax-free.

3. Salary Sacrifice

In some cases the government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance). This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.

4. Spouse exemptions

Assets that produce an income – like shares, bonds, funds and buy-to-let property – can be passed between spouses without triggering a tax bill. They can therefore be shared between a couple, so that both take advantage of their income tax and dividend allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.

5. Marriage allowance

If one spouse is a non-taxpayer, and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer give £1,190 of their personal allowance to their spouse in the current tax year.

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