How to Pay Less Tax in the UK: 20 Legal Ways to Cut Your Personal Tax Bill in 2026/27
Knowing how to pay less tax in the UK legally starts with claiming the allowances and reliefs you are already entitled to. Every year, plenty of people hand over more than they need to, simply because nobody told them which ones apply. This guide sets out 20 legal ways to reduce your taxable income and cut the tax on your salary for the 2026/27 tax year, covering pensions, ISAs, Gift Aid, expenses and more.
Quick Answer: How Can You Pay Less Tax in the UK?
To pay less tax in the UK legally, pay more into your pension, use salary sacrifice, use your full £20,000 ISA allowance, claim allowable expenses, and donate through Gift Aid. To reduce tax on your salary specifically, pension contributions and salary sacrifice do most of the work, because both lower the income you are taxed on.
20 Ways to Reduce Your Personal Tax Bill
Table of Contents
UK Tax Allowances and Thresholds for 2026/27
Tax area | 2026/27 figure |
Personal Allowance | £12,570 |
Higher-rate threshold | £50,270 |
Additional-rate threshold | £125,140 |
Pension annual allowance | £60,000 |
ISA annual allowance | £20,000 |
Lifetime ISA annual limit | £4,000 |
Capital Gains Tax annual exempt amount | £3,000 |
Dividend allowance | £500 |
Marriage Allowance transfer amount | £1,260 |
Maximum Marriage Allowance saving | £252 |
Rent a Room relief | £7,500 |
High Income Child Benefit Charge starts | £60,000 adjusted net income |
Full Child Benefit charge applies | £80,000 adjusted net income |
These figures apply to the 2026/27 tax year. If you are a Scottish taxpayer, your Income Tax rates on employment, pension and property income may differ, though the UK-wide allowances and the rules for savings and dividend income still apply.
1. Pay More Into Your Pension
Few things reduce your taxable income as efficiently as a pension contribution, and you are building up your retirement pot at the same time.
For 2026/27, the standard pension annual allowance is £60,000, although it can be lower if you are a high earner or have already flexibly accessed a defined contribution pension. Go over your available allowance and you may face an annual allowance tax charge.
Contributions usually attract tax relief at your marginal rate. Basic-rate relief is normally added by your provider without you lifting a finger. If you pay higher or additional rate, you often need to claim the extra relief yourself, either through Self Assessment or by contacting HMRC.
Example Say you are a higher-rate taxpayer. A qualifying pension contribution can pull income out of the 40% band, and for some people it also lowers adjusted net income, which can claw back part of the Personal Allowance once income goes above £100,000.
That is exactly why pension planning is so valuable for anyone earning between £100,000 and £125,140, where the Personal Allowance is gradually stripped away.
2. Use Pension Carry Forward
Did not use your full pension annual allowance over the past three tax years? You may be able to carry the unused amount forward and make a larger contribution this year.
To do this, you generally need to have belonged to a registered pension scheme in the years you are carrying forward from. You also need enough relevant UK earnings to support personal contributions, unless your employer is making the payment.
Carry forward comes into its own in a high-income year, after a bonus, following the sale of a business, or when you are trying to bring down your adjusted net income. The catch is that the rules get technical fast, especially if the tapered annual allowance applies to you.
3. Consider Salary Sacrifice for Pension Contributions
With salary sacrifice, you agree to give up part of your salary in return for a non-cash benefit, most often an employer pension contribution. Because that slice of salary is never actually paid to you, it can cut both your Income Tax and your National Insurance, depending on how the arrangement is set up.
That often makes it more efficient than paying into a pension from your take-home pay. It can also help reduce adjusted net income, which matters for the Personal Allowance taper and the High Income Child Benefit Charge.
A couple of practical points. Salary sacrifice has to be set up properly with your employer, it usually cannot be applied after the fact once salary or a bonus has been earned, and it must not push your pay below National Minimum Wage.
4. Make Full Use of Your ISA Allowance
An Individual Savings Account, or ISA, lets your savings and investments grow free of Income Tax and Capital Gains Tax.
For 2026/27, the overall ISA allowance is £20,000. You can spread it across the different types, such as cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs, as long as you stick to the rules for each one.
ISAs do not cut your taxable income the way a pension does. What they do is shelter your interest, dividends and gains from tax going forward, which matters more than ever now the dividend allowance is just £500 and the Capital Gains Tax annual exempt amount is only £3,000.
5. Watch the Cash ISA Rule Change From April 2027
For 2026/27, the overall ISA allowance stays at £20,000. From 6 April 2027, though, the annual cash ISA limit is due to be cut to £12,000 for investors under 65, while those aged 65 and over are expected to keep a £20,000 cash ISA limit.
That turns 2026/27 into an important planning year if you favour cash ISAs. If you are sitting on a large pot of cash outside an ISA, now is a good time to check you are using your allowance well.
Cash ISAs are not always the right home for money you are saving over the long term, because inflation chips away at its real value. For an emergency fund, a short-term goal or simply earning interest tax-free, though, they do a useful job.
6. Use a Lifetime ISA if You Qualify
A Lifetime ISA can work nicely if you are buying your first home or saving for later life. You can pay in up to £4,000 a year, and the government tops it up by 25%, so up to £1,000 a year.
What you put into a Lifetime ISA counts towards your overall £20,000 ISA allowance. You normally have to open one before you turn 40, and you can keep paying in until you are 50.
They are not for everyone, though. Withdrawals are usually only penalty-free if you are buying a qualifying first home, you are over 60, or you are in certain limited situations such as terminal illness. Make sure you understand the withdrawal rules before you commit any money.
7. Handle Dividend Income Carefully
If you hold shares outside an ISA, or take dividends from your own limited company, dividend planning is worth your attention.
The dividend allowance for 2026/27 is £500. Anything above that is taxed according to your Income Tax band. From 6 April 2026, the dividend tax rates are:
Tax band | Dividend tax rate above the allowance |
Basic rate | 10.75% |
Higher rate | 35.75% |
Additional rate | 39.35% |
If you are a company director taking dividends, it is well worth reviewing your salary-and-dividend mix with an accountant. The most efficient split depends on Corporation Tax, employer National Insurance, the allowances available to you, your pension contributions and your overall income.
8. Use Your Personal Savings Allowance
A lot of people pay no tax on their savings interest at all, thanks to the Personal Savings Allowance. Basic-rate taxpayers can usually earn up to £1,000 of interest tax-free, higher-rate taxpayers up to £500. Additional-rate taxpayers do not get one.
On top of that, lower-income savers may benefit from the starting rate for savings, which can let up to £5,000 of savings interest be taxed at 0%, depending on the rest of your income.
If your interest is heading above your allowance, think about whether a cash ISA, Premium Bonds, a pension contribution or another tax-efficient option suits your situation better.
9. Claim Gift Aid Relief on Charitable Donations
Gift Aid stretches your charitable giving further and can trim your own tax bill if you are a higher or additional-rate taxpayer.
When you give through Gift Aid, the charity reclaims an extra 25p for every £1 you donate, provided you have paid enough UK tax to cover it. Higher and additional-rate taxpayers can then claim further relief themselves, usually through Self Assessment or by asking HMRC to adjust their tax code.
Example Donate £800 under Gift Aid and the charity treats it as a £1,000 gross gift. As a higher-rate taxpayer, you may be able to claim relief on the gap between the basic and higher rate.
Keep a record of what you have given, especially if you complete a tax return.
10. Check Whether You Qualify for Marriage Allowance
Marriage Allowance is a small but genuine saving for some married couples and civil partners.
It lets one partner pass £1,260 of their Personal Allowance to the other, which can cut the receiving partner’s tax bill by up to £252 a year.
It usually works where one partner earns below the Personal Allowance and the other is a basic-rate taxpayer. It is generally not available if the partner receiving the allowance pays higher or additional rate. And if you were eligible in earlier years but never claimed, you can normally backdate a claim up to four tax years.
11. Move Suitable Assets to Your Spouse or Civil Partner
Couples can sometimes save tax simply by holding income-producing assets in the right name.
If one of you pays tax at a lower rate, it can make sense for that person to hold more of the savings or investments. Helpfully, transfers between spouses or civil partners who live together are usually treated as no gain/no loss for Capital Gains Tax purposes.
Done well, this makes better use of both partners’ allowances, dividend allowances, savings allowances and tax bands.
Be careful, though. This is an area where the detail matters, particularly if you are separating, moving property, holding company shares, or transferring assets that generate serious income. Take advice before you act.
12. Plan Your Capital Gains Tax Disposals
Capital Gains Tax can apply when you sell assets such as shares, a second home, valuable possessions or cryptoassets.
For 2026/27, the annual exempt amount for individuals is £3,000, and gains above that may be taxable. A little planning can keep the bill down. Options include:
- using your annual exempt amount where it makes sense;
- spreading disposals across more than one tax year;
- setting allowable capital losses against your gains;
- transferring assets to a spouse or civil partner before a sale, where suitable;
- holding investments inside an ISA or pension where you can.
One word of caution: do not let the tax tail wag the investment dog. Selling an asset affects your wider finances, your risk and your long-term plans, not just your tax position.
13. Make the Most of Capital Losses
Sell something at a loss and you may be able to use that loss to reduce taxable gains. Losses get overlooked surprisingly often, particularly by people dealing in shares, funds, cryptoassets or investment property.
To use a loss, you generally need solid records and you need to report it to HMRC within the relevant time limits. Once you have, unused losses can often be carried forward and set against future gains.
This will not turn a bad investment into a good one, of course. But when gains and losses are managed together, it can take a real bite out of your tax bill.
14. Claim Allowable Employment Expenses
If you pay for certain job-related costs yourself and your employer does not reimburse you, you may be able to claim tax relief.
Typical examples include:
- subscriptions to approved professional bodies;
- specialist uniforms or protective clothing;
- business mileage in your own vehicle;
- tools or equipment you need for the job;
- some travel costs, where the journey qualifies.
The cost has to be incurred wholly, exclusively and necessarily for your work. Your ordinary commute does not count.
One change to note: from 6 April 2026, employees can no longer claim Income Tax relief from HMRC for extra homeworking costs for the 2026/27 tax year. Claims for the previous four tax years may still be possible where the conditions were met at the time.
15. Claim Business Expenses if You Are Self-Employed
When you are self-employed, you can deduct allowable business costs from your trading income before working out your taxable profit.
Common allowable expenses include:
- office costs;
- software and subscriptions;
- business travel;
- accountancy fees;
- marketing;
- insurance;
- business phone and internet;
- training that relates to your existing trade;
- use of home as an office, where it applies.
The test is whether the cost is incurred wholly and exclusively for your trade. Where something is used for both business and personal life, you can usually only claim the business portion.
Good bookkeeping makes all of this far easier. Keep your receipts, invoices, mileage records and bank statements as you go, rather than scrambling to piece it together at the last minute.
16. Use Mileage Allowance Correctly
If you drive your own vehicle for work, mileage claims can reduce your taxable income or allow tax-free reimbursement.
For employees using their own car or van for business journeys, the approved mileage rate for 2026/27 is 55p per mile for the first 10,000 business miles and 25p per mile after that. Motorcycles and bicycles have their own rates.
Self-employed people may be able to use simplified mileage expenses rather than working out actual running costs, depending on their circumstances.
Either way, keep a mileage log noting the date, where you went, why, and how many business miles you covered. HMRC may ask to see it if your claim is reviewed.
17. Use Rent a Room Relief
Let a furnished room in your main home and Rent a Room relief can let you earn up to £7,500 a year tax-free. If you split the income with someone else, the limit is usually halved to £3,750 each.
It is a handy relief if you take in a lodger. It is not the same as letting a separate rental property, and different rules can apply if you are running a guest house or Airbnb-style accommodation, or operating a property business.
If your rental income goes over the threshold, you will need to decide whether to use the relief or work out your actual profit after allowable expenses.
18. Reduce the High Income Child Benefit Charge
The High Income Child Benefit Charge can apply where you or your partner claim Child Benefit and one of you has adjusted net income above £60,000.
For 2026/27, the charge kicks in once adjusted net income passes £60,000, and the full charge applies at £80,000.
One of the most effective ways to soften it is to bring your adjusted net income down through pension contributions or Gift Aid donations, which can help some families keep more of their Child Benefit.
And even if you decide not to take the payments, it is often still worth registering for Child Benefit, because it can protect your National Insurance credits towards the State Pension.
19. Look at EIS, SEIS and VCT Investments With Care
Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trust investments come with generous tax reliefs, but they are high-risk and are not right for everyone.
EIS can offer Income Tax relief, CGT deferral and potentially tax-free growth if the conditions are met. SEIS can give even higher Income Tax relief for backing very early-stage companies. VCTs can offer Income Tax relief on new shares plus tax-free dividends, subject to the rules. From 6 April 2026, VCT Income Tax relief is 20% on new qualifying subscriptions, while EIS and SEIS have their own separate rates and conditions.
These are genuinely risky investments, and you could lose some or all of your money. As a rule, only consider them after taking regulated financial advice.
20. Get Professional Advice Before the Big Decisions
Tax planning works best when it happens in advance, before the tax year ends, before a bonus lands, before you sell an asset, or before a dividend is declared.
A qualified accountant or tax adviser can help you:
- spot allowances and reliefs you are missing;
- plan pension contributions and salary sacrifice;
- get your Self Assessment right;
- reduce the risk of HMRC penalties;
- work out whether you need to report capital gains;
- choose the right structure for self-employment, property or company income;
- steer clear of planning that is ineffective, aggressive or non-compliant.
The goal here is not to dodge tax. It is to organise your finances sensibly, claim what you are entitled to, and avoid paying a penny more than you have to.
How to Reduce Tax on Your Salary in the UK
If you are employed, the practical levers are usually pension contributions, salary sacrifice, checking your tax code is correct, claiming the employment expenses you are owed, using Gift Aid, and keeping an eye on Child Benefit if your income is over £60,000.
Just be careful with working-from-home claims. From 6 April 2026, employee homeworking tax relief is no longer available for the 2026/27 tax year, though earlier-year claims may still stand if you met the conditions at the time.
How to Reduce Tax Through Self Assessment
If you file a Self Assessment return, make sure every relief and claim actually goes on it: pension contributions, Gift Aid, allowable business expenses, professional subscriptions, capital losses and Marriage Allowance where it applies.
A lot of overpaid tax comes down to one thing. People enter their income perfectly well, then forget to claim the reliefs they are legally entitled to.
Conclusion
There is no shortage of legal ways to cut your UK personal tax bill, but the best ones depend entirely on your circumstances. For most people, the heavy lifting is done by pension contributions, salary sacrifice, ISAs, allowable expenses, Gift Aid, planning between spouses or civil partners, and keeping a careful eye on dividends and capital gains.
If there is one thing to take away, it is this: plan early. Leave it until the Self Assessment deadline and you will already have run out of road on some of the most useful options, because they have to be sorted before the income is paid, the asset is sold, or the tax year closes.
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FAQ
How can I legally pay less tax in the UK?
By making full use of the allowances and reliefs available to you, such as pension contributions, ISAs, Gift Aid, allowable expenses, Marriage Allowance, Capital Gains Tax planning and salary sacrifice. The right mix depends on your income and circumstances.
What is the best way to reduce taxable income in the UK?
For a lot of people, it is pension contributions. As well as cutting taxable income, they can lower your adjusted net income, which helps with the Personal Allowance taper and the High Income Child Benefit Charge.
Can I reduce the tax on my salary?
Yes. Employees can often reduce it through pension contributions, salary sacrifice, eligible employment expenses, Gift Aid and making sure their tax code is right. Not every option suits every employee, though.
Can I still claim working-from-home tax relief in 2026/27?
Employees cannot claim Income Tax relief from HMRC for extra homeworking costs for the 2026/27 tax year. Claims for earlier years may still be possible if you met the conditions. Self-employed people may still be able to claim a fair business-use-of-home cost.
How much can I put into an ISA in 2026/27?
The overall ISA allowance is £20,000, which you can spread across the permitted ISA types, subject to the rules for each.
What is the pension annual allowance for 2026/27?
The standard allowance is £60,000. It can be lower if you are a high earner or have flexibly accessed a defined contribution pension.
Does Marriage Allowance actually reduce tax?
It can, by up to £252 a year, where one partner has unused Personal Allowance and the other is a basic-rate taxpayer.
Do I need an accountant to reduce my tax bill?
Not for simple claims. But professional advice tends to pay for itself if you are self-employed, a landlord, a company director, a high earner, an investor, or anyone juggling capital gains, dividends or complicated income.
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