Tax planning can seem daunting, but with some knowledge and the right strategies, you can significantly reduce your tax bill. This post will highlight some key tax-saving methods for the 2024/25 tax year.
1. Make the Most of Your Personal Allowance
Everyone gets a tax-free personal allowance, which is £12,570 for the 2024/25 tax year. Make sure you’re utilizing this fully. If your income is below this, explore options to make use of the allowance, such as through the marriage allowance.
2. Utilise the Marriage Allowance
If one spouse earns less than the personal allowance and the other is a basic-rate taxpayer, a portion of the personal allowance can be transferred, potentially saving £252 in tax.
3. Maximize Pension Contributions
Pensions offer significant tax relief. Contributions are topped up by the government with basic-rate tax relief, and higher-rate taxpayers can claim additional relief, effectively getting a discount on their investments.
4. Consider Salary Sacrifice
If you’re a salary earner, explore salary sacrifice pension arrangements with your employer for both income tax and national insurance relief.
5. Make Full Use of ISAs
Investments within an Individual Savings Account (ISA) are completely tax-free. Make full use of your annual £20,000 ISA allowance across cash, stocks and shares, Lifetime and Innovative Finance ISAs.
6. Don’t Forget the Lifetime ISA
If you’re under 40, a Lifetime ISA offers a 25% government bonus on savings, useful for a first home or retirement, while also being tax-free.
7. Be Aware of the Personal Savings Allowance
Basic-rate taxpayers can earn up to £1,000 and higher-rate taxpayers can earn £500 of interest income tax-free.
8. Know Your Dividend Allowance
The first £500 of dividend income is tax-free in 2024/25.
9. Consider Venture Capital Trusts
VCTs offer a 30% income tax relief, tax-free dividends, and tax-free capital gains.
10. Split Income with Your Spouse
Transfer assets producing taxable income to the spouse with the lowest tax rate. This can be interest, rental, or dividend income.
11. Employ Family Members
Pay salaries to family members for work done in your business, making use of their personal allowance. These salaries are also a deductible business expense.
12. Be Strategic About Taxable Profits
If you are self-employed, be mindful of your marginal tax rate. If your profits are likely to fall in the next tax year, you may want to bring forward expenditure.
13. Claim All Tax-Deductible Expenses
Self-employed individuals and landlords should claim all allowable expenses to reduce taxable profits. This can include home office costs, travel, and capital expenditure.
14. Use the Cash Basis for Rental Income (if eligible)
Landlords can use the cash basis, where tax is paid on income actually received, and expenses are deducted when paid.
15. Make Use of Business Asset Disposal Relief
If you are selling or winding up a trading company, make sure you qualify for Business Asset Disposal Relief to pay capital gains tax at 10%.
16. Understand Stamp Duty Land Tax
Be aware of stamp duty rates and reliefs, especially when buying additional properties.
17. Remember Tax-Free Gifts
Gifts of cash are tax-free, but transfers of other assets may trigger capital gains tax.
18. Rent out a Room in Your Home
If you rent out a room in your main residence, the income is tax free up to £7,500 per year.
19. Be aware of Foreign Currency Gains
Capital gains from foreign currency bank accounts are tax-free.
20. Review Tax-Free Benefits from Employers
Make sure you are aware of all tax-free benefits that your employer might be offering.
Important Note: Tax laws and regulations can be complex, and this information is intended as general guidance. The guide “How to Save Tax 2024/25” stresses that it is not professional advice. Always consult a qualified tax advisor for personalised advice based on your circumstances. Tax legislation is constantly changing. For example, the furnished holiday lets tax regime is due to be abolished in April 2025, and the multiple dwellings relief for stamp duty land tax is scheduled to be abolished from 1st June 2024.