Tax reliefs – how to reduce your tax bill

What is tax relief?

Tax relief is something you can claim to reduce your overall tax bill.

Typically they allow you to deduct certain payments, such as pension contributions, from your gross income so there's less for you to be taxed on.

Alternatively, tax relief can be claimed back from HMRC after you have been taxed, as is the case if you make a charitable donation and opt for Gift Aid.

You can claim tax reliefs in addition to any personal tax-free allowances that you are entitled to, which means you'll take home more of your income and pay less tax.

This guide explains which tax reliefs are available, how they work and whether you're eligible to receive them.

Tax relief for job expenses

Working from home tax relief

You may be eligible for tax relief if you work from home for all or part of the week.

During the coronavirus pandemic, most workers were ordered to work from home, resulting in increased gas and electricity bills for many. HMRC allows you to claim tax relief to help cover some of these costs, with the amount dependent on your income.

The eligibility criteria have since been tightened, but you can still apply for backdated tax relief for the 2020-21 and 2021-22 tax years if you had to work from home due to COVID-19. HMRC has a dedicated portal here.

From 2022-23, you can no longer apply for tax relief if your contract allows you to work from home, or if you have to work from home due to Covid.

Travel costs

If you drive to work, you can't claim tax relief for travelling from your home to your usual place of work.

But you may be able to claim on journeys to a temporary workplace, or if you're travelling elsewhere for business. This is subject to the HMRC rate of mileage allowance.

Find out more in our guide to tax-deductible expenses.

If you commute using public transport, your employer may offer a season ticket salary sacrifice scheme, where you'll pay in monthly instalments from your pre-taxed salary.

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Uniforms costs

You can also claim tax relief for maintaining a uniform that you have to wear for work.

This is defined as something you have to wear that identifies you as having a certain occupation, for example, a nurse, or police officer, but can also apply to other specialist clothing you may have to wear that does not identify you as having a certain occupation such as overalls and safety boots.

Professional subscriptions

Fees and subscriptions to some professional bodies you need to pay for to do your job may also be eligible for tax relief.

HMRC has published a list of all such approved subscriptions.

You can't claim back fees or subscriptions for:

• Lifetime membership subscriptions.
• Fees or subscriptions you haven't paid for yourself - for example, if your employer has paid for them.

Tax relief when you're self-employed

If you're self-employed, you're able to claim expenses on things you have to pay for to run your business - from office supplies to costs for running a business premises or facilities for working from home.

Our guide to self-employed tax allowable expenses includes the full range of expenses you can deduct from your tax bill.

If you're registered for VAT, you can also claim the VAT tax you pay on certain items - most items have a VAT of 20% - from HMRC through your VAT return.

Tax relief on pension contributions

The video below illustrates how tax relief on private pension contributions works.

Tax relief is available on contributions up to 100% of your annual earnings – i.e. if you earn £30,000 a year, you can get tax relief on up to £30,000 paid into your pension in a single tax year.

However, the maximum contribution you can earn tax relief on in a year is £60,000 – this is called the annual allowance. If you earn more than a certain amount you’ll have a reduced ('tapered') allowance.

If you belong to an employer's pension scheme, tax relief is usually applied automatically to your contributions. However, if you pay into your own personal or stakeholder pension then you claim tax relief differently.

• Find out more in our guides to tax relief on pension contributions and the pensions annual allowance.

Tax relief on charitable donations

Payroll giving

Some employers offer a charitable giving scheme through payroll, where you can make donations and have them deducted from your salary before it's taxed. This means you receive full tax relief on your gift immediately.

Not only does this mean you can make regular charitable donations, not paying tax on them means you'll be able to afford to give more money and will pay less tax on the reduced salary you receive after the donations have been deducted.

Gift Aid

When you opt to donate through the Gift Aid scheme, your donation is net of tax, which means the charity can reclaim an additional 20% of the balance directly from HMRC.

Say you pay £100 to charity. You'd have to earn £125 gross pay to have £100 in your pocket after tax. So when you make your donation, the charity can claim back the 20% tax, and receive £125.

In practice, this means charities receive an additional 25p for every £1 you donate.

Higher-rate taxpayers, who pay 40% tax, can claim the additional 20% tax relief either through their tax return or by contacting their tax office.

Asset donations to charity

Anyone who donates certain assets to charity will benefit from income tax relief on the full market value of the gifts.

The gifts that qualify for tax relief are:

• listed shares and securities
• unlisted shares and securities dealt on a recognised stock exchange, such as the AIM (alternative investment market)
• units in authorised unit trusts
• shares in open-ended investment companies (OEICs)
• holdings in certain foreign collective investment schemes
• any freehold or leasehold property, provided the whole interest is given.

Tax relief that landlords can claim 

Rent-a-Room tax relief

If you're renting a room out in your home, rather than a whole property, you can take advantage of the Rent-a-Room tax relief, which means you can earn up to £7,500 a year before tax.

Find out more in our guide to the Rent-a-Room scheme: letting a room in your home

Replacement of domestic items relief

As a landlord, you can claim 'replacement of domestic items relief' - this covers the replacement of items such as beds, carpets, crockery or cutlery, curtains, sofas and fridges, washing machines and other white goods. 

You can only claim for a like-for-like replacement, the cost of which can be deducted from your income tax profit for the year.

We explain this in our guide to landlord expenses and allowances.

Mortgage interest tax relief

There have been significant changes to how buy-to-let mortgage interest tax relief works. 

You can no longer deduct any of your mortgage expenses from your rental income to reduce your tax bill.

Instead, you now receive a tax-credit, based on 20% of your mortgage interest payments.

For more, see our guide: buy-to-let mortgage interest tax relief changes explained

Tax relief on qualifying loan interest payments

When paying back certain types of loans, you can get tax relief on the interest payments you make.

The loans that normally qualify are:

• a loan taken out to purchase shares in the borrower's company or to finance loans to the company, provided that, generally speaking, that company is not an investment company
• a loan taken out to invest in certain types of partnership
• a loan taken out to buy plant and machinery for use in a trading, professional or property partnership's business
• a loan taken out to pay inheritance tax

Provided the relevant conditions are met in each case, you can deduct the gross amount of interest paid during the tax year on the loan from your income before tax is applied. This has the effect of reducing the amount of income you pay tax on.

For instance, if you pay £5,000 in interest payments on a loan you've taken out, and you earn £30,000 a year, you'd deduct the £5,000 from your salary so you only pay tax on £25,000. If you're a basic-rate taxpayer in this scenario, the tax you pay on your income would be reduced by £1,000.

• Find out more: income tax calculator

Tax relief for married couples and parents

Married couple's allowance and marriage allowance

The marriage allowance and married couple's allowance are schemes that allow tax relief to be shared between couples who are married or in a civil partnership.

Married couple's allowance (MCA) is available where one or both spouses were born before 6 April 1935.  It works by reducing the tax bill of one spouse by 10% of the allowance they're entitled to.

The recipient of MCA is normally the husband. However, if you married or became civil partners on or after 5 December 2005, the allowance is given to the partner with the higher income (and is also reduced by reference to their income). 

Marriage allowance is available where one or both spouses were born after 5 April 1935. It allows one partner who earns below the personal allowance of £12,570, to donate 10% of it to their partner - who must be a basic-rate taxpayer. The higher-earning spouse receives a tax credit, which reduces the amount of income tax they pay.

• Find out more: marriage allowance and married couple's allowance explained

Maintenance payments tax relief

It's possible to claim Maintenance Payments Relief - worth 10% of the maintenance you pay up to a maximum of £428 a year - on maintenance payments made to an ex-spouse or civil partner if all of the following apply:

• Either of you were born before 6 April 1935
• You're paying maintenance under a court order after the relationship has ended
• The payments are for the maintenance of your ex-spouse or former civil partner (if they aren't now remarried or in a new civil partnership) or for your children who are under 21.

Tax-free childcare

Tax-free childcare is a government scheme where working parents can claim up to £2,000 a year per child to pay into an online childcare account.

The childcare vouchers scheme (which allowed you to swap your wages for childcare vouchers) closed to new applicants in October 2018, but anyone who was already signed up can still use it.

• Find out more: tax-free childcare and help with childcare costs

How to claim a tax refund

HMRC has a free online service where you can find out how to claim back overpaid tax, which might be the case if you've missed out on tax reliefs you were eligible for – like pension contributions, fuel costs or maintaining work clothing for your job.

In most cases, tax reliefs can be backdated up to four years.

By going directly to HMRC, you're guaranteed to get 100% of any rebate you're eligible for – this won't be the case if you claim via a separate company.

If you're considering making a claim via a repayment agent, be sure to carefully read their terms and conditions to understand exactly what you're signing up for, the fees you'll have to pay, and the terms of the 'deed of assignment' – this is a legal agreement necessary for allowing someone to make a tax claim on your behalf.

Concerns have been raised over taxpayers being charged excessive amounts by some agents for claiming routine tax repayments on their behalf, and HMRC recently announced it would be cracking down on some of these agents' practices.

• Find out more: HMRC to clamp down on tax refund companies