Five ethical ways to cut your tax bill

In February, HSBC was rocked by allegations that it helped some of its wealthiest clients avoid tax. The story forced the issue to the top of the political agenda, with all major parties quickly making it clear that they are the ones who can be trusted to clamp down on businesses and wealthy individuals who dodge the taxman ahead of May's General Election.

As for the rest of us who aren't worth millions of pounds, is there any way we can cut down our tax bills ethically?

Moneywise takes a look at the ways you can ease your tax burden while keeping a clear conscience.

The basics

If you are taking the time to consider your tax commitments, then it is a good idea to make sure you are paying the correct amount of tax in the first place.

Check you are on the correct tax code by either calling HMRC or visiting its website ( You will need your current tax code, which is found on your payslip or your P60, along with details of your earnings and savings both before and after tax.

Also, check you are getting all the tax credits you are entitled to. The tax credits calculator, also on the HMRC website, will help you work out your household income and if you are eligible to claim both Child and Working Tax Credit.

The basic amount you can claim from Working Tax Credit is £1,940, though what you are entitled to depends on a wide range of factors including your family's circumstances and income. Contact the Tax Credit Helpline on 0345 300 3900 for help in finding out if you qualify.

Alternatively, if you'd rather not use a government website to look into the benefits situation, why not visit or


It's important to make your savings as tax-efficient as possible and using an Isa is the best - and most simple - way.

An Isa lets you squirrel away thousands of pounds each year and avoid paying tax on the interest you earn. From 6 April, you will be able to save a maximum of £15,240 during the new tax year (2015/16) without HMRC being able to take its cut.

Crucially, the allowance is reset at the beginning of each tax year so even if you've maxed out your allowance in the current year, you will again be able to put away the maximum amount in the next one.

Last year's Budget introduced major changes, with Chancellor George Osborne announcing that the new, simplified accounts (Nisas or 'New Isas') would allow people to hold the maximum annual amount in cash, stocks or shares, or a combination of the two. Previously, people had to split their savings between two separate accounts (the limits in the 2014-15 tax year began as £11,520 for stocks and shares and just £5,760 for cash before the New Isa regime came into being).

Andrew Hagger, founder of financial website, says Isas are a must-have for anyone wanting to save cash: "As a basic-rate taxpayer, you will keep that 20% on interest earned rather than it ending up in the taxman's coffers, while for higher-rate taxpayers, Isas are even more compelling with a 40% saving on the interest earned."

If you have a young family, then you will want to take a look at a Junior Isa (Jisa), which works in the exactly the same way as the adult equivalent (though there are still separate accounts for stocks and shares and cash).

Introduced in 2011 as a replacement for Child Trust Funds, the allowance for the new tax year is £4,080. Children cannot withdraw the money until they turn 18, so mums and dads can grow a healthy nest egg for them before they reach adulthood.

Find the best cash Isa or savings account for you


It is important to get your pension arrangements in order, as you can claim tax relief on private pension contributions worth up to 100% of your annual earnings.

However, with research from Prudential and revealing UK taxpayers are set to lose out on a whopping £2.9 billion in 2015, either by failing to claim back their relief from HMRC, or by not paying into a pension at all, many of us are missing out on a welcome tax boost.

If you are a basic-rate taxpayer and pay £8,000 into your pension, the government will top this up to £10,000, thanks to tax relief of 20%, while a higher- rate taxpayer gets relief at 40% and an additional- rate taxpayer at 45%.

Your workplace scheme (an occupational pension) will see your employer deduct your pension contributions from your salary before tax has been paid, so you get the full benefit of tax relief straightaway without having to take any action.

If you are paying into a personal pension, your contributions are paid from your own taxed income, so your pension provider will claim 20% relief on your behalf, while higher-rate taxpayers can also claim a further 20% back either via their tax return or in writing to HMRC.

And if you are over 55 and are planning on taking advantage of the new pension rules which come into force this month, remember the 25% tax-free lump sum applies to each withdrawal from your fund, not just the first one.


In February, the government opened registration for its new Marriage Allowance – a tax break for the UK's four million married couples and 15,000 civil partnerships that could see them save up to £212 a year.

The allowance means that a spouse or civil partner can transfer up to £1,060 from their personal allowance to their partner as long as neither of them pay more than the basic rate of income tax.

Some married people already have a tax break through the married couple's personal allowance. To qualify, you or your partner needs to be born before April 1935 and how much you receive depends on the income level of the claimant.

For the tax year 2015/16, the allowance is worth between £322 and £835.50 depending on your income and savings.

In a further boost for older married couples, retirees will be able to pass on annuity income tax-free if they die before 75 (currently where a joint annuity is held, the survivor's pension is taxed at their marginal rate). The changes will only apply where no payments have been made to the beneficiary before 6 April 2015.

And as a simple and common-sense step, Hagger suggests married couples and civil partners should consider moving their savings into the name of the person who pays less tax in order to lower their obligation.

"If a higher-rate tax-paying husband, for example, moves a proportion of his cash savings to his wife who pays basic-rate tax, there is immediately a 20% saving on the taxable interest," he says.


Families can also take advantage of inheritance tax (IHT) incentives. Rules introduced in 2007 mean that married couples and civil partners can use each other's allowance without resorting to special planning with an independent financial adviser (IFA).

Everyone has a tax-free IHT allowance of £325,000, while anything above this – or the 'nil-rate band' as it is called – is taxed at flat rate of 40%. This might sound like a high threshold but when you consider four million homes in the UK are worth £300,000 or more, it's easy to see how the allowance is swiftly eaten into.

However, married couples and civil partners are allowed to transfer any unused nil-rate band when the first person dies. This means if you leave everything to your spouse on your death, they will have a £650,000 threshold for their estate to use before IHT kicks in.

Certain gifts are also exempt from IHT. All gifts of up to £250, gifts made between married couples and civil partners, and gifts up to £3,000 in total in any tax year are some of the more common examples where IHT doesn't apply. Other rules allow you to gift larger sums tax-free, as long as you live for seven years after the date of the gifting.


The government offers tax relief to all individuals giving donations to charities or community amateur sports clubs - though how this is worked out depends on the way in which you donate.

If you were to leave a gift to a favoured charity in your will, your donation will be either taken from the value of your estate before IHT is calculated or reduce your IHT rate if more than 10% of your estate is left to charity.

Gift Aid, one of the most common ways of giving, means the charity can claim an extra 25p for every pound you donate. It won't cost you anything extra and if you are a higher-rate taxpayer, you can claim the difference between the higher and basic rate on your donation.

This means that if you were to donate £100 as a higher-rate taxpayer, the charity of your choice would receive £125 in total via Gift Aid, while you can claim £25 back.

You don't have to pay capital gains tax on land, property or shares donated to charity and you can pay less income tax by deducting the value of your donation from your total taxable income when you complete your tax return.

More about

Your Comments

Your paragraph that reads "And if you are over 55 and are planning on taking advantage of the new pension rules which come into force this month, remember the 25% tax-free lump sum applies to each withdrawal from your fund, not just the first one."
Shorly you can only take out 'up to' 25% of your fund tax free and not keep dipping in and taking tax withdrawls?