How to Pay Less Tax in 2026/27: 8 Legal Ways to Reduce Your Bill
Reducing your tax bill legally is not tax evasion — it is exactly what Parliament intended when it created these reliefs. Here are eight HMRC-approved strategies, from the simple to the more advanced.
1. Use salary sacrifice for pension contributions
Salary sacrifice is the single most tax-efficient way most employees can reduce their bill. Instead of taking your full salary and then contributing to your pension, your employer reduces your contractual pay by the contribution amount before tax and National Insurance are calculated.
Because your gross pay is lower, you pay less income tax and less National Insurance. Your employer also saves employer NI (15% in 2026/27) and many pass this saving directly to your pension pot.
Example: £50,000 salary, £5,000 extra pension contribution
Without sacrifice
Tax + NI on full £50,000
~£12,300 deducted
With sacrifice
Tax + NI on £45,000
~£10,300 deducted
Save ~£2,000 per year
The pension annual allowance for 2026/27 is £60,000 (or 100% of your earnings if lower), so most people have significant room.
2. Maximise your ISA allowance
You can save or invest up to £20,000 per year in an ISA. All growth, dividends, and interest inside an ISA are completely free of income tax and capital gains tax — forever.
For investors with a Stocks and Shares ISA, this is particularly powerful. A portfolio growing at 7% per year outside an ISA generates a CGT and dividend tax bill. Inside an ISA, all returns are yours to keep.
If you have a spouse or civil partner, you have a combined allowance of £40,000 per year. Over time this is a very significant shelter.
3. Escape the 60% tax trap at £100,000
If your income is between £100,000 and £125,140, you face one of the most punishing tax rates in the UK. For every £2 earned above £100,000, you lose £1 of your personal allowance — creating an effective marginal rate of 60% (67.5% in Scotland).
The solution is straightforward: make pension contributions to reduce your adjusted net income below £100,000. This restores your full personal allowance and eliminates the trap.
Example: income of £110,000
Contributing £10,000 to your pension brings adjusted net income to £100,000, restoring your £12,570 personal allowance. The effective tax saving on that £10,000 is around £4,000 — a 40% effective rate rather than 60%.
4. Claim marriage allowance
If you are married or in a civil partnership and one of you earns below the personal allowance (£12,570), the lower earner can transfer £1,260 of their allowance to their partner. This saves the higher earner up to £252 per year.
You can also backdate a marriage allowance claim for up to four previous tax years, potentially recovering over £1,000.
Apply directly through HMRC's website or via your Self Assessment return. It takes about 5 minutes.
5. Use your capital gains tax allowance
Everyone has an annual CGT allowance of £3,000 in 2026/27. Gains below this are tax-free. If you hold investments outside an ISA, consider realising gains up to this threshold each year — especially if you're in a lower-rate year.
Spouses and civil partners each have their own allowance, so couples can realise up to £6,000 of gains per year tax-free. Transferring assets between spouses is also free of CGT (the recipient inherits the original cost).
Note: the CGT allowance has been cut significantly in recent years — from £12,300 in 2022/23 to £3,000 today. Using it each year is important; it cannot be carried forward.
6. Shelter dividends inside a pension or ISA
The dividend allowance is just £500 in 2026/27 — down from £5,000 a few years ago. Dividends above this are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).
If you hold dividend-paying investments in a general investment account, consider moving them into an ISA (using your £20,000 allowance) or pension. Inside both, dividends are tax-free.
For company directors taking a dividend: the optimal strategy is typically a small salary up to the NI threshold (£12,570) combined with dividends up to the basic-rate band limit, minimising both income tax and NI.
7. Give to charity via Gift Aid
When you donate to a UK charity under Gift Aid, the charity reclaims 20% basic-rate tax on your donation. If you are a higher or additional-rate taxpayer, you can claim the difference between your tax rate and the basic rate via Self Assessment.
On a £1,000 donation, the charity receives £1,250 (after claiming Gift Aid). A 40% taxpayer can then claim a further £250 back through Self Assessment, making the net cost just £750.
Charitable donations also reduce your adjusted net income, which can help if you are near the £100,000 threshold or the child benefit high income charge threshold (£60,000).
8. Carry forward unused pension allowance
If you have not used your full pension annual allowance in the previous three tax years, you can carry forward the unused amount. This lets you make a much larger lump-sum pension contribution in a single year — particularly useful if you have received a bonus or a windfall.
You must have been a member of a registered pension scheme in the year you are carrying forward from, but you do not need to have contributed anything.
Combined with salary sacrifice, carry-forward can be a powerful way to bring a very large income (such as a £200,000 year) back down to a more efficient tax band.
Quick reference: strategies at a glance
| Strategy | Best for | Potential saving |
|---|---|---|
| Salary sacrifice (pension) | All employees | Up to £2,000+/yr |
| ISA allowance | Savers and investors | Tax-free growth |
| £100k pension top-up | Earners £100k-£125k | Up to £5,028+ |
| Marriage allowance | Couples, one low earner | Up to £252/yr |
| CGT allowance | Investors | Up to £600/yr |
| Dividend sheltering | Investors, directors | Varies widely |
| Gift Aid | Higher/additional rate | 25p per £1 donated |
| Carry forward | Bonus/windfall years | Up to £120,000 relief |