Raise Your (Invisible) Hand If You Want to Pay Less Tax

Hello Stoic Investors,

Hands up (figuratively speaking) if you don’t really like paying taxes, just like me!

For everyone who just raised their hand, here’s some good news and some bad news.

The bad news is: unfortunately, we can’t avoid paying taxes completely.

The good news is: we can find legal ways to pay less and keep more of our money.

If the person who wrote that Reddit post were one of my readers, they would definitely have raised their hand — because that’s exactly what they asked about:

These are, in my opinion, the three key steps that can help you reduce your tax bill legally:

Step 1. Max out your ISA allowance

In the UK, there is a type of account called an ISA (Individual Savings Account).

It’s a special account where you can save or invest money without paying any tax on the money you earn inside it.

That means if your investments grow in value or you receive income like interest or dividends, you get to keep 100% of it — no tax at all.

Each tax year (from 6 April to 5 April the following year), the government gives you an ISA allowance.

This is the maximum amount of money you’re allowed to put into an ISA during that year.

Right now, the limit is £20,000 per year.

You don’t have to invest the money immediately.

Even if you're not sure what to do with it yet, you can simply move money into the ISA before the 5 April deadline, and it will count towards this year’s allowance.

You can then decide how to invest it later.

One important thing to know is that the unused allowance doesn’t carry over.

For example, if you only put in £5,000 this year, the other £15,000 of your allowance disappears on 6 April — you can't use it later.

But don’t worry:

on 6 April, a new tax year begins, and you get another £20,000 allowance to use.

So yes — you can keep adding to your ISA every year, and it can grow as much as you want over time, all tax-free.

Opening an ISA is quick and easy.

In fact, you usually do it through a broker or investment platform.

To find the best broker or platform for your ISA, you can use a website like BrokerChooser.com.

Step 2. Contribute to your SIPP

A SIPP (Self-Invested Personal Pension) is a type of private pension that you control.

It’s mainly for long-term saving — you can’t take money out until you’re at least 55 (or 57 from 2028) — but it comes with big tax benefits.

The first benefit is that the government adds a 20% bonus on your contributions.

For example, if you put £800 into your SIPP, the government adds £200, so you end up with £1,000 in your pension.

This happens automatically for basic-rate taxpayers.

But there’s a second benefit that’s even more powerful:

if you earn enough to be in a higher tax band, putting money into a SIPP can reduce your total taxable income.

That means you could pay less tax overall, or even drop into a lower tax band.

For example, let’s say you earn £55,000 a year.

The 20% tax band only goes up to £50,270, so anything above that is taxed at 40%.

But if you contribute £4,730 to your SIPP, your taxable income drops back to £50,270 — and those £4,730 are now taxed at 20% instead of 40%.

That’s a big saving!

Step 3. Don’t just put money in your ISA — invest it

Putting money into an ISA is a great first step, but just leaving it in cash means you’re missing out on the real benefit.

To truly make the most of your ISA, the money needs to be invested — that’s how it can grow over time, completely tax-free.

If you keep your ISA in cash, your money will likely lose value slowly over time because of inflation (the rising cost of living).

But if you invest that money — for example in stocks or funds — it has the chance to grow much more over the years.

One of the simplest ways to start investing inside an ISA is to buy a low-cost ETF.

An ETF is a fund that includes many companies, so you don’t have to choose individual stocks.

For beginners, a good example is SWDA, an ETF that invests in large companies all over the world — like Apple, Microsoft, Nestlé, Toyota and many more.

It gives you global diversification and has low fees.

You can invest a lump sum, or set up a monthly investment if that feels easier.

For example, if your goal is to use the full £20,000 allowance over the year, you could invest about £1,660 each month.

But even smaller amounts make a difference if you stay consistent.

These tips are valuable and a great starting point for most people looking to pay less tax legally in the UK.

However, they are quite general and may not fit everyone perfectly.

It’s always a good idea to look at your personal situation carefully — such as your income, goals, and other factors — before making decisions.

If needed, consider talking to a financial advisor who can give advice tailored just for you.

Remember, the more you understand and plan, the better you can use these tools to keep more of your money!

So, note down these 3 steps and start investing today:

1. Max out your ISA allowance: Put up to £20,000 per year into an ISA to save or invest without paying tax;

2. Top up your SIPP before the deadline: Add money to your pension (SIPP) to get a government bonus and reduce taxable income;

3. Invest your ISA money: Don’t just save cash—invest in low-cost funds like ETFs to help your money grow tax-free.