The UK government makes sure everyone pays the tax to HMRC regardless of their job nature. Employed or self-employed, you are liable to pay tax. If you have shares in a company, the dividend you get is also taxed. Being a salaried person and getting dividends at the end of the financial year, you must know tips for minimising tax liability. This article gives you tips for minimising tax liability while making some extra money.
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What are the Tips for Minimising Tax Liability?
If you are a salaried person or a businessman, you will always want to pay the correct amount of tax to the HMRC and to learn the tips for minimising tax liability in the UK. For this purpose, in-depth knowledge of tax laws and allowances is important. First, you should know the following key points:
- The current personal allowance amount is set by the UK government. For the year 2025/2026, it is £12,570 of your income.
- Know your income tax bracket. Each band has a specific tax rate. For high earners, it is 40% to 45%.
- Understand the allowances offered by the government. The tax reliefs are offered on capital gains tax, dividends, and savings.
Along with the required knowledge, below are the tips for minimising tax liability.
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Maximise Your Pension Contributions
The pension amount is deducted from your salary. In the UK, the pension contribution is taxable, which means it lowers the tax bar on your salary. The annual pension contribution that is tax-free for 2025/2026 is £60,000, which means 100% of your salary. If you are a high-rate taxpayer, the savings give you more tax reduction. Each pound you tag as savings reduces your tax bill.
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Take Advantage of ISAs
The individual savings account (ISA) is a proactive approach to reduce tax liability on salary and dividends. The individual savings account gives you an annual allowance of £20,000. This encompasses all interest, dividends, and capital gains in your individual savings account.
This method allows you to increase your investment without worrying about the tax liability. The cash individual savings account can be used for salary and other income, while the stocks and shares individual savings account can be used for the dividends you receive.
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Try Tax-Loss Harvesting
To reduce tax liability on dividends, you can avail yourself of tax-loss harvesting. This can be used if the stocks are going low in the market and generating less profit. You can sell the shares when the value is low, giving you less tax burden. In the UK, you must abide by the 30-day rule.
This rule states that you cannot purchase the same stocks immediately after selling. If applied at a proper time, this is one of the great tips for minimising tax liability.
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Make Charitable Donations
Making charitable donations gives not just peace of mind but also reduces your tax amount. In the UK, the charities are made through Gift Aid. When you donate something through Gift Aid, you can claim an extra relief of 25p for every £1 you donate, which increases the funding to charitable organisations with no tax burden on your pocket.
If you are a high-rate taxpayer in the UK, you can claim the difference between the high rate and the basic rate on the amount you donated. For instance, if you donate £1,000, you can claim back £250. It’s 100% beneficial for you, as you support a cause while having a reduced tax liability.
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The 2025-2026 Dividend Allowance
The UK government has set an allowance amount for the dividends you get. The dividend allowance for the year 2025-206 is £500. If your dividend amounts are less than or up to £500, you are not taxed on your dividends. You can still avail yourself of the personal allowance on your income with the dividend allowance or charity allowance.
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Conclusion
There are several tips for minimising tax liability on your salary and dividends while filing tax returns at the end of the financial year. You can avail of personal allowance, make charitable contributions, use dividend allowance, or increase your pension contributions. In the UK, charitable contributions are made through Gift Aid, and you can claim an allowance of 25p on each £1 you donate to an organisation. The good thing is you can enjoy multiple allowances at a time, which reduces your tax burden to a great extent without affecting your financial activities.
Disclaimer: All the information provided in this article on tips for minimising tax liability, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.