How to pay less tax in 2024

With the – which Keir Starmer has warned will be “painful” – it’s more important than ever to ensure you’re not paying more tax than you need to. Workers were already set to lose a record percentage of their pay to the taxman due to the freeze on tax thresholds, but now further tax rises are a probability. At 5.

4pc, wage growth continues to outpace inflation – pushing more workers into higher tax brackets, which are set to remain unchanged until 2028 under government plans. The Office for Budget Responsibility forecasts that by 2028 the UK’s tax burden is on track to hit a post-war high of 38pc. Fortunately, there are many things you can do to reduce your tax bill.



Here, Telegraph Money outlines the strategies that could save you tax in 2024. There are different tax rates and thresholds, depending on the type of tax. In some instances, the rate you pay will depend on your income tax band.

On the first £12,570 you earn in a single tax year, there is no income tax to pay – this is known as the . On annual earnings between £12,571 and £50,270, you’ll pay the basic rate of income tax, at 20pc. On earnings of £50,271 to £125,140, you’ll pay the higher income tax rate of 40pc.

On earnings over £125,140, you’ll pay the additional income tax rate of 45pc. The tax rates and thresholds are different in Scotland. For each £2 you earn over £100,000, your personal allowance will fall by £1.

If you earn £125,140 or more, you do not qualify for any personal allowance. If you are blind, your personal allowance increases to £15,641. You pay tax on any capital gains realised in a single tax year that are over the annual threshold of £3,000 for profits in 2024-25.

This is down from £6,000 in 2023-24. If you’re a basic-rate taxpayer, and the gains you’ve made combined with your taxable income are within the basic income tax amount of £50,270, you’ll pay 10pc on the amount over the £3,000 threshold. On residential property and carried interest, this amount rises to 18pc.

If you’re a higher-rate taxpayer, you’ll pay capital gains tax of 20pc on any amount above the tax-free allowance of £3,000, or 24pc on residential property and 28pc on carried interest. If you’re a basic-rate taxpayer, these rates also apply if your gains combined with your taxable income are above the basic income tax amount – but only on the gains above this threshold. In April, the capital gains tax allowance halved from £6,000 to £3,000.

This means a higher-rate taxpayer selling a second property that has grown £50,000 in value now pays £13,160 in tax. This comes as capital gains revenues have already been climbing upwards, as shown in the graph below. If your estate is liable to inheritance tax, then your heirs will face a 40pc levy on the part of your estate that exceeds the £325,000 threshold when you die.

This rises to £500,000 for those passing on a home to their children, and £1m for couples. Growing numbers of taxpayers are edging into the higher-rate and additional-rate tax bands. Hundreds of thousands of workers entered the 45pc threshold in April last year after the then Conservative government lowered the additional rate threshold from £150,000 to £125,140.

Around 11pc of the population now pay higher rates of tax – compared to just 3.5pc in 1991, according to think tank the Institute for Fiscal Studies. There are a few ways to reduce the rate you pay.

Shaun Moore, of investment firm Quilter, said: “Increasing pension contributions is one of the most impactful methods. Contributions to your pension are eligible for tax relief at your highest rate of income tax. This not only aids in building a retirement fund but also reduces your immediate tax bill.

” Alternatively, you could donate to charity to reduce your tax bill. “Through Gift Aid, charities can claim an extra 25p for every £1 you donate, and if you’re a higher-rate taxpayer, you can claim back the difference between the rate you pay and the basic rate on your donation. This strategy not only supports good causes but also reduces your taxable income.

” Taking advantage of a can reduce your income tax in a similar way to making pension contributions, as the money is taken pre-tax. If you’re married, you may be able to claim , which can cut a couple’s tax bill by up to £250 a year. Higher interest rates paid on nest eggs mean that more and more savers are losing chunks of their investment and savings income to tax.

There are three reasons for this. The first is that the – the amount someone can earn in interest on their savings before having to pay tax – remains frozen despite rising savings rates. The personal savings allowance is just £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, while additional rate taxpayers get no allowance at all.

Those with lower earnings (less than £17,570) can also benefit from the savings starting rate, which adds a tax-free savings allowance of up to £5,000. As a result, a higher-rate taxpayer earning 5pc would need only £10,001 in savings before they were hit with a tax bill. The list below details what to keep in mind when it comes to savings interest.

The second reason is the shrinking dividend allowance. In April, the dividend tax allowance is also dropping from £1,000 to £500. This means that those with investments worth more than £12,500 and yielding 4pc a year will be caught out by the tax.

The final reason is the reduced capital gains allowance. Over the past few tax years it’s fallen from £12,300 in 2022-23, to £6,000 in 2023-24, to just £3,000 in 2024-25. The simplest thing you can do if you are worried about paying tax on your savings or investments is make the most of your £20,000 annual Isa allowance.

You can also save up to £9,000 a year into a for your child. You may want to consider transferring some savings or investments over to a lower-earning family member – even if you’ve both already used up your Isa allowances for this tax year, they will at least be charged a lower rate of tax if returns exceed the tax-free thresholds. For more tips, see our guide offering .

The Telegraph is campaigning to abolish inheritance tax, but it looks unlikely to happen under a Labour government. The OBR revealed in November that the tax continues to raise record amounts for the Government, with revenue expected to reach almost £10bn in 2028. If your estate could fall into the net, then the simplest thing you can do is give away wealth during your lifetime.

Every individual gets a £3,000 annual gift allowance. However, you can give away as much as you like provided you survive the gift by seven years – this is known as . If the donor passes away within the seven year window, then the gift will be included as part of their estate.

If the combined estate is worth more than £325,000, inheritance tax may be due. Couples can also pass unlimited sums to each other, and pool their allowances. Combined, and using the additional £175,000 residence nil-rate band, a couple could leave up to £1m for heirs tax-free.

Our separate guide goes into more detail on ..