There are several legitimate ways to reduce the amount of tax you pay in the UK. While everyone needs to pay the correct amount of Income Tax and National Insurance, careful planning can help you make full use of available tax reliefs, allowances and workplace benefits.
In this guide, we explain practical and legal ways to reduce your tax bill, including pension contributions, salary sacrifice, Gift Aid, tax-efficient investing, household planning and making sure your tax code is correct. We also link to deeper SalaryHub guides where each topic is covered in more detail.
1. Increase Pension Contributions
Pension contributions are one of the most effective ways to reduce your taxable income while building long-term retirement savings.
If you contribute to a workplace or personal pension, you may receive tax relief. For higher-rate and additional-rate taxpayers, increasing pension contributions can significantly reduce the amount of Income Tax paid.
For example, if you earn £60,000 and contribute more into your pension, part of your income that would otherwise be taxed at 40% may instead be sheltered within your pension.
Pension contributions can also help reduce your adjusted net income, which may preserve Child Benefit and prevent or reduce the Personal Allowance taper for incomes above £100,000.
For a deeper explanation, read our Pension Contributions and Tax Relief guide, or see our broader Pension Contributions Guide.
2. Use Salary Sacrifice
Salary sacrifice allows you to exchange part of your gross salary for certain benefits, most commonly additional pension contributions.
Because the sacrificed amount is deducted before tax and National Insurance are calculated, both your Income Tax and National Insurance bill may fall. In many cases, this can be more efficient than making pension contributions from net pay.
Common salary sacrifice arrangements include:
- Workplace pension contributions
- Cycle to Work schemes
- Electric vehicle schemes
- Certain childcare and workplace benefits
Before using salary sacrifice, check how it may affect mortgage applications, statutory pay and employer benefits linked to contractual salary.
Read our full Salary Sacrifice Explained guide to understand the benefits, drawbacks and impact on take-home pay.
3. Check Your Tax Code
Your tax code determines how much tax-free income you receive before PAYE tax is deducted.
If your tax code is incorrect, you may be paying too much tax throughout the year.
Common tax codes include:
- 1257L – the standard tax code for most employees
- BR – all income taxed at the basic rate
- D0 – all income taxed at the higher rate
- D1 – all income taxed at the additional rate
- NT – no tax deducted
- K codes – used when deductions exceed allowances
Reviewing your payslip and checking your tax code with HMRC can sometimes result in a tax refund if you have overpaid. See our UK Tax Codes Explained guide for more detail.
4. Claim Tax Relief on Work Expenses
Employees may be able to claim tax relief on certain work-related expenses that are wholly, exclusively and necessarily incurred for their job.
Examples include:
- Professional memberships and subscriptions
- Uniforms and protective clothing
- Tools and equipment
- Business mileage not reimbursed by your employer
- Some working-from-home costs
Claims can often be made directly with HMRC, and in some cases may be backdated for previous tax years.
5. Use Gift Aid on Charity Donations
Gift Aid allows charities to reclaim basic-rate tax on your donations, increasing the value of your gift at no extra cost.
Higher-rate and additional-rate taxpayers may also be able to claim extra tax relief through Self Assessment or by contacting HMRC.
Gift Aid can also reduce adjusted net income, which may help around the Personal Allowance taper and Child Benefit thresholds. Read our full Charity Donations, Gift Aid and Tax Relief guide.
6. Transfer Marriage Allowance
If one spouse or civil partner earns less than the Personal Allowance and the other is a basic-rate taxpayer, some of the unused allowance may be transferred.
This can reduce the higher earner’s tax bill and is worth checking if one partner has a low income or is not currently working.
7. Use ISAs and Tax-Efficient Investments
Individual Savings Accounts (ISAs) allow investments and savings to grow free of UK Income Tax and Capital Gains Tax.
Other tax-efficient investments, such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS), may offer additional reliefs, though they carry higher investment risk.
These options are generally more relevant for higher earners and experienced investors.
8. Plan Around Key Tax Thresholds
Certain income thresholds can have a significant impact on your tax position:
- Higher-rate tax threshold
- Additional-rate tax threshold
- £100,000 Personal Allowance taper
- Student loan repayment thresholds
- High Income Child Benefit Charge
In some cases, making an additional pension contribution or using salary sacrifice can help keep income below these thresholds.
To understand how thresholds work, read our Income Tax Bands Guide and UK Income Tax Guide.
9. Review Child Benefit and Adjusted Net Income
If your adjusted net income exceeds the relevant threshold, some or all of your Child Benefit may be clawed back through the High Income Child Benefit Charge.
Pension contributions and Gift Aid donations can reduce adjusted net income and may help preserve Child Benefit entitlement.
10. Consider Employing Your Spouse Tax Efficiently
Business owners may be able to employ a spouse or civil partner in a genuine role within the business. Where the work is real and the salary is commercially reasonable, this can help make better use of household allowances and lower tax bands.
This is particularly relevant where one partner pays higher-rate tax and the other has low or unused income. Read our Employing Your Spouse Tax Efficiently guide before considering this approach.
11. Use a Take-Home Pay Calculator
Tax planning decisions are easier when you can see the numbers clearly.
SalaryHub’s calculators let you compare the impact of:
- Increasing pension contributions
- Applying salary sacrifice
- Changing tax codes
- Receiving bonuses
- Adding student loan deductions
- Comparing tax years
Estimate Your Tax Savings
Use our Salary Calculator to see how pension contributions, salary sacrifice and other deductions affect your take-home pay.
Use the Salary CalculatorFrequently Asked Questions
What is the best way to reduce tax in the UK?
For most employees, increasing pension contributions and using salary sacrifice are among the most effective and straightforward ways to reduce taxable income.
Can I legally pay less tax?
Yes. Making full use of available allowances and reliefs is entirely legal and commonly used by employees and business owners.
Do pension contributions reduce Income Tax?
Yes. Pension contributions can attract tax relief and may reduce the amount of income subject to higher or additional rates of tax.
Can Gift Aid reduce my tax bill?
Yes. Higher-rate and additional-rate taxpayers may be able to claim additional relief on eligible charitable donations made under Gift Aid.
Should I seek professional advice?
For complex situations involving business ownership, investments or high incomes, professional tax advice can be worthwhile.
Final Thoughts
Saving tax in the UK does not usually require complicated schemes. In many cases, reviewing your pension contributions, salary sacrifice options, tax code, Gift Aid donations and household allowances can make a meaningful difference.
By understanding how the tax system works and using SalaryHub’s calculators and guides, you can make more informed decisions about your income and keep more of what you earn.