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March 05, 2025
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Tax Planning • March 05, 2025
Understanding Tax Relief: Are You Leaving Money on the Table?
Hoxton Blog • Understanding Tax Relief: Are You Leaving Money on the Table?
Many people pay more tax than they need to. Tax relief exists to reduce what you owe, but millions fail to claim what they’re entitled to each year.
Whether it’s through pension contributions, charitable donations, or work-related expenses, there are many ways to cut your tax bill. The key is knowing what tax relief options you have available to you, and the pros and cons of taking advantage of them.
Tax rules change often, and it’s easy to assume that reliefs are applied automatically, but that’s not always the case. Some tax breaks require action on your part, so if you don’t check, you could be giving the government more than necessary. Understanding how tax relief works can help you keep more of your income, which ultimately improves your long-term financial security and can help you reach your financial goals sooner.
In this article, we’re giving you the details you need to know about tax relief, some of the most common types, and how to claim it.
What is Tax Relief?
Tax relief reduces the amount of tax you would otherwise pay. It’s designed to incentivise certain behaviours that the government wants to encourage, like saving for retirement.
Tax relief can be applied in several ways. Some reliefs lower your taxable income, meaning you owe less overall, while others provide direct reductions on tax bills, giving back money you’ve already paid.
Most people receive some tax relief through their salary. Workplace pensions, for example, are set up to deduct contributions before tax is applied, but other reliefs must be claimed manually. If you don’t take action, you might miss out.
The general aim for tax relief is to make certain actions ‘tax free’. So, for example, consider a pension contribution for a basic rate tax payer.
As basic rate tax is currently 20%, £1,000 worth of earned income would result in a net payment into your bank account of £800 (we’re ignoring other deductions like National Insurance Contributions for this illustration).
Now if you were to make a contribution of £800 into your pension scheme, this figure is ‘grossed up’ to provide tax relief on this payment of £200, which would automatically be credited to your pension fund. As you can see, the net result is that you have effectively received a refund of your income tax in the form of tax relief.
This is just one example, and not all tax relief works in exactly the same way. It’s also important to note that you don’t actually have to earn any income in order to claim certain types of tax relief. Whilst the general aim is to provide a refund for tax you’ve paid, this isn’t a specific requirement in every circumstance, and in some cases you can receive tax relief even if you pay no income tax.
Common Tax Relief Opportunities
Many tax breaks go unclaimed because people don’t realise they qualify. It’s always worth seeking professional advice to make sure you’re claiming all the reliefs you can, but here are some common examples to act as a jumping off point.
Pension contributions
Pension contributions are one of the most valuable ways to reduce tax, especially as the funds you contribute remain yours to grow for your retirement. When you pay into a pension, the government adds relief at your income tax rate. So, basic rate taxpayers get 20% added automatically, and higher earners can claim an extra 20% or 25% through their tax return. If you haven’t been doing this, you could be owed a significant sum.
Charitable donations
Donating to charity also provides tax relief, with the difference being you can either claim the relief for yourself, or allow the charity to claim it on your behalf. This process, known as Gift Aid, allows charities to reclaim tax on donations, increasing their value. If you’re a higher or additional rate taxpayer, you can claim back the difference between your tax rate and the basic 20%. Many forget to do this, leaving money behind each year.
Marriage allowance
Those who are married or in a civil partnership may benefit from Marriage Allowance. This allows a lower-earning spouse to transfer part of their tax-free allowance to their partner, reducing the household tax bill. It’s easy to claim but often overlooked, and you can claim back up to four tax years if you haven’t been claiming it.
Self-employed reliefs
Self-employed workers have many ways to reduce tax through allowable expenses. Business costs such as office supplies, travel, and professional fees can all be deducted. Employees can also claim tax relief on work-related costs like uniforms, tools, and professional memberships, if those costs aren’t covered by their employer. If you work from home, you may also be able to claim a portion of your household bills.
Capital gains tax (CGT) relief
CGT is another area where tax relief applies. Selling assets like property or shares may lead to a CGT bill, but there are ways to reduce it. Spreading gains across multiple tax years, using tax-free allowances, or transferring assets to a spouse can all help cut costs, while some specialist investments like venture capital trusts or enterprise investment schemes have their own specific types of tax relief.
Mortgage interest relief on buy-to-let properties
If you own any investment properties, you may be able to claim back a portion of the interest for any mortgages you have against these properties. The amount you can claim back is limited to the basic rate (20%), even if you’re a higher or additional rate tax payer, but it’s nonetheless worth looking at.
How to Claim Tax Relief
Some tax reliefs are applied automatically, such as pension contributions through your employer which already include basic rate relief. If you’re self-employed, your self-assessment tax return will account for some allowable expenses, but you’ll need to be sure to claim for things that aren’t directly related to your work.
Whether you’re an employee or self-employed, higher rate pension relief, Gift Aid, and work-related expenses must be claimed through a self-assessment tax return. If you don’t complete one, you can claim backdated relief by contacting HMRC. You can usually claim tax relief for up to four previous tax years.
Marriage Allowance claims can be made online, and uniform or work-related expenses are processed using a P87 form. Capital Gains Tax relief requires careful planning, but strategies like spreading sales over multiple years or gifting assets to a spouse can be set up, with the right advice.
The Benefits of Proactive Tax Planning
While tax planning can seem like a bit of a chore, it’s well worth the effort. Here are some of the benefits of taking a proactive approach to your tax.
Keep more of what you earn
One of the biggest benefits of using tax reliefs effectively is that you get to keep more of your income. If you don’t claim what you’re entitled to, that money stays with the government instead of in your pocket. By making full use of pension relief, deductible expenses, and allowances, you reduce what you owe and increase your disposable income.
Boosting long-term savings
Using tax relief efficiently doesn’t just help with short-term savings, it also plays a huge role in building long-term wealth. Making full use of pension contributions, ISAs, and capital gains allowances can protect more of your income from tax and grow your savings over time.
Pensions are a great example. Contributions receive tax relief, meaning your money goes further. As mentioned earlier, a basic rate taxpayer putting £800 into a pension sees that topped up to £1,000. For a higher rate taxpayer, the true cost of a £1,000 contribution is just £600 after claiming extra relief. Not only do you get that immediate boost, but also the long term growth on it.
Less stress and fewer tax surprises
Nobody likes a surprise tax bill. Without proper planning, you may find yourself owing more than expected when tax season arrives. Keeping track of tax reliefs, making use of available deductions, and structuring your finances efficiently can help avoid last-minute stress.
Many people don’t realise they could be due a refund. If you’ve overpaid tax on work expenses, pension contributions, or investment income, you may be owed money. Regularly reviewing your tax situation ensures you can claim back overpayments rather than letting them go unclaimed.
How Hoxton Wealth Can Help With Your Tax Planning
It’s easy to miss opportunities when it comes to tax, which is why at Hoxton Wealth, we help individuals and business owners make the most of tax-saving strategies. Whether it’s pension relief, capital gains tax planning, or maximising allowances, we ensure you don’t leave money on the table.
If you’re unsure what reliefs apply to you, or if you want to check if you’re owed a refund, our team can help. Speak to one of our advisers today to make sure you’re making the most of every tax-saving opportunity.
Disclaimer: This communication is for general information purposes only and should not be considered individual financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future. The value of investments and any income derived from them may fluctuate, and you may not get back the amount originally invested. This content reflects our understanding of current laws and HM Revenue & Customs practice as of 10/03/25. We strongly recommend seeking professional advice before making any financial decisions. Please note that tax and estate planning services are not regulated by the Financial Conduct Authority.
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