5 Ways To Pay Less in Taxes While Growing Your Savings and Investments

Let’s face it, knowing how much of your income goes to paying taxes is not a pleasant thing. And this hits home when you file your tax returns. That’s when you get to see the total amount you paid in taxes for an entire year.

And no matter how much you complain about it, the fact is that you will still have to pay taxes. At least if you are planning on being an upstanding citizen.

The good thing is that the government provides upstanding citizens such as yourself with legal ways to pay less in taxes while growing your investments and savings.

In this article, I will focus on how the Kenyan government allows you to do this. If you live in another country, your government may offer similar or better incentives.

The Why

But first things first: Why would the government want you to pay less in taxes? Considering its ever-increasing budget and missed tax collection targets.

The simplest way I can put this is the government wants you to save and invest more. By offering tax incentives, the government wants to encourage activities or outcomes that either benefit you or itself.

5 ways to pay less in taxes

Let’s take a look at five tax incentives that let you pay less in taxes while growing your savings and investments

1. Invest in Infrastructure Bonds

When the government wants to build roads, railways, etc and needs to raise funds for the project, they issue infrastructure bonds. These bonds allow you to lend the government money for a certain period.

During that period, the government pays you interest on the money you loaned it. This is a bit like how you pay interest on a loan you took from a bank. Only this time, you are the bank and you are the one receiving the interest.

To encourage you to invest in the infrastructure bond, the government offers tax exemption on the interest you earn from the bond. This makes them a very popular investment option for many people and institutions.

2. Get a Pension

We all need a pension that will sustain us in our old age. It’s also in the government’s best interest for its aging citizens to be able to sustain themselves.

To encourage you to save for retirement, the government offers tax exemptions to anyone with a pension scheme. The catch is that the pension scheme has to be registered by the Retirement Benefits Authority .

The tax exemption covers up to Ksh 20,000 monthly contributions or Ksh 240,000 per year.

Also, the first Ksh 600,000 lump sum that you withdraw upon retiring and Ksh 25,000 monthly pension that you receive is tax-free.

3. Get a Mortgage

Part of the government’s big four agenda is to create affordable housing. In other words, the government wants as many people as possible to own their own houses.

Another way it has been trying to push homeownership is to offer mortgage relief. This relief covers mortgages up to Ksh 25,000 monthly or Ksh 300,000 per year.

You also qualify for the same relief if you borrow money from a registered financial institution to improve your home. The only condition is that you must be residing in that house.

4. Save for your Next Home

If you prefer not to take a mortgage but save to buy a home, you can sign up for a Home Ownership Savings Plan (HOSP).

This will entitle you to a tax relief on deposits of a maximum of Ksh 8,000 per month or Ksh 96,000 per year. To make it more appealing, you get a tax exemption on interest earned from the savings up to a maximum of Ksh 3 million.

An example of an HOSP is the Nyumba Yangu Savings Account by HF Group (Formerly Housing Finance)

5. Get Insured

Another thing that we all need is life insurance. It will greatly help your family in the unfortunate event of your passing on.

To encourage you to get a life insurance cover for yourself and your family, the government offers tax relief of 15% of the premium you pay up to a maximum of Ksh 5,000 or Ksh 60,000 per year.

Final Note

As you can see, these tax incentives are beneficial to you. They help you diversify your portfolio and grow your savings. Additionally, they help protect and improve your livelihood.

To see how much you can save in paying taxes, check out this KRA PAYE calculator.