In today’s economy, it’s increasingly common for people to have multiple income streams—such as a main job, side businesses, rental income, investments, and freelance work. While multiple streams of income can boost your financial security and wealth, they can also complicate your tax situation. The UK tax system offers several strategies to reduce your overall tax bill if you plan and manage your finances carefully. This comprehensive guide explains how to save on taxes if you have multiple income streams in the UK.
Understanding How Multiple Incomes Are Taxed
In the UK, all taxable income is aggregated when calculating your tax bill. This means that income from employment, self-employment, property, dividends, and savings is added together to determine your overall taxable income. The total is then subject to Income Tax at progressive rates:
- 20% basic rate: £12,571 to £50,270
- 40% higher rate: £50,271 to £125,140
- 45% additional rate: Over £125,140
This aggregation can push some of your income into higher tax brackets, leading to a higher overall tax liability. Fortunately, there are strategies to help offset this effect.
Maximising Personal Allowances
Every individual in the UK is entitled to a Personal Allowance, which is the amount of income you can earn tax-free. For the 2025/26 tax year, this is £12,570. If your income exceeds £100,000, however, your Personal Allowance is reduced by £1 for every £2 over this limit, meaning it can disappear completely at incomes above £125,140. Managing your income streams to keep your total below this threshold can help preserve your Personal Allowance and reduce your tax bill.
Utilising Marriage Allowance or Married Couple’s Allowance
If you’re married or in a civil partnership and one partner’s income is below the Personal Allowance while the other pays tax at the basic rate, you can transfer up to £1,260 of Personal Allowance to the higher earner using Marriage Allowance, saving up to £252 per year. Those born before 6 April 1935 may qualify for Married Couple’s Allowance, which offers a different form of tax relief.
Claiming Allowable Expenses
Claiming all allowable expenses related to each income stream can significantly reduce your taxable income. For example:
- Self-Employment: Deduct expenses like office supplies, business travel, phone bills, and advertising costs.
- Property Income: Deduct mortgage interest, letting agent fees, repairs, and maintenance costs.
- Investments: Offset any capital losses against capital gains to reduce your tax bill.
Always keep receipts and detailed records to support your expense claims.
Using Pension Contributions to Reduce Tax
Contributing to a pension is one of the most tax-efficient ways to reduce your tax liability. Pension contributions attract tax relief at your highest marginal rate—meaning a 40% taxpayer gets 40% relief. Pension contributions can also help keep your income below higher tax thresholds (such as £50,270 or £100,000), helping to preserve your Personal Allowance or avoid higher rates of tax.
For example, if your total income is £55,000, a £5,000 pension contribution reduces your taxable income to £50,000, potentially saving you from paying 40% tax on that £5,000.
Utilising ISA Allowances
Investing in an Individual Savings Account (ISA) allows you to earn tax-free interest, dividends, and capital gains. For the 2025/26 tax year, the annual ISA allowance is £20,000 per person. ISAs are particularly valuable for those with multiple income streams, as they can shelter savings and investments from additional tax charges.
Dividing Income Streams with a Spouse or Civil Partner
If you and your spouse or civil partner both pay tax, you can sometimes allocate income-generating assets (such as savings, investments, or rental properties) to the partner with the lower tax rate to reduce the overall tax liability. This can be particularly effective if one partner is a basic rate taxpayer and the other is a higher rate taxpayer. Transfers between spouses are generally exempt from Capital Gains Tax, making this an attractive strategy for married couples.
Claiming Reliefs and Allowances on Specific Income Streams
Different types of income attract different allowances and reliefs. For example:
- Trading Allowance: The first £1,000 of self-employment income is tax-free. If your side business income is below this amount, you don’t have to declare it.
- Property Allowance: The first £1,000 of rental income is also tax-free.
- Dividend Allowance: The first £500 of dividend income is tax-free in 2025/26.
- Savings Allowance: Basic rate taxpayers can earn £1,000 in savings interest tax-free, while higher rate taxpayers can earn £500 tax-free.
Make sure to apply these allowances to your income to reduce your overall tax liability.
Timing Your Income Streams
Consider the timing of income receipts, such as delaying the invoicing of self-employment income or deferring the sale of assets, to remain within a lower tax band or to utilise annual allowances effectively. For example, deferring income to the next tax year might help you stay within the basic rate band for the current year.
Managing Capital Gains Tax (CGT)
If you’re selling investments or other assets, use the annual CGT exemption (£3,000 for 2025/26) to shelter gains. Also, offset capital losses against gains to reduce your taxable profit. Spreading disposals over multiple tax years can help you use multiple annual exemptions.
Registering for Self-Assessment
If you have untaxed income (e.g., self-employment, rental income, or significant savings interest), you must register for Self-Assessment and file an annual tax return. This process allows you to claim all eligible deductions and reliefs, which is essential to avoid overpaying tax.
Hiring Professional Help
Tax planning can be complex, especially with multiple income streams. A qualified tax adviser or accountant can help you navigate the rules, identify deductions you may have missed, and ensure your tax return is accurate and compliant. Their expertise can often save you more than their fee through effective tax planning strategies.
Conclusion
Having multiple income streams in the UK can be financially rewarding but also presents tax challenges. By understanding how income is taxed, using allowances and reliefs effectively, claiming all eligible expenses, and considering pension contributions and ISAs, you can significantly reduce your overall tax liability. Plan ahead, keep detailed records, and seek professional advice where needed to make the most of your income while staying on the right side of HMRC regulations.
