With the tax year ending on 5th April 2025, now is the time to review your finances and take advantage of tax-saving opportunities. You should take advantage of tax planning to reduce liabilities and benefit from tax reliefs before the 5th April 2025 deadline.
1. Income Tax Planning in 2025
Personal Allowance
The Personal Allowance remains at £12,570. If your income exceeds £100,000, your Personal Allowance reduces by £1 for every £2 earned over this limit. Therefore, this means an effective tax rate of 60% on income between £100,000 and £125,140.
How to reduce taxable income:
- Make pension contributions to lower your adjusted Net Income
- Donate to charity under Gift Aid, reducing taxable income while supporting a good cause
- Distribute income efficiently between your spouse to use both of your Personal Allowances
2. Capital Gains Tax
Changes to Capital Gains Tax Rates
On 30th October 2024, the Capital Gains Tax rate increased to 18% for Basic-rate taxpayers and 24% for Higher-rate taxpayers.
Use Your Annual Exemption
The £3,000 Annual Exemption resets on 6th April 2025. If you plan to sell assets, consider using both this year’s and next year’s exemptions to spread out gains.
Tax-saving tips:
- Transfer assets between spouses to maximise both allowances
- Offset capital losses against gains to reduce tax liability
- Consider timing disposals to fall in different tax years
3. Tax-Efficient Investments
Maximise Individual Savings Account Contributions
The Individual Savings Account allowance is £20,000 per year, providing tax-free interest and growth. If you have not used this allowance yet, consider doing so before 5th April 2025.
Enterprise Investment Schemes and Venture Capital Trusts
Enterprise Investment Schemes and Venture Capital Trusts offer Income Tax relief of up to 30% and exemption from Capital Gains Tax on qualifying investments. While these are higher-risk investments, they can be a useful tax-planning tool.
4. Inheritance Tax Planning in 2025
Nil Rate Band and Residence Nil Rate Band
The Inheritance Tax Nil Rate Band remains at £325,000, with an additional £175,000 Residence Nil Rate Band if leaving a home to direct descendants. Additionally, estates over £2,000,000 may see reductions in this relief.
Make use of Annal Exemptions:
- Gift up to £3,000 per year tax-free
- Gift up to £250 to unlimited individuals
- Regular gifts from surplus income are exempt if they don’t affect your standard of living.
5. Tax Changes for Business Owners
Corporation Tax and Profit Extraction
Corporation Tax rates remain at 19% for profits up to £50,000 and 25% for profits over £250,000. Those in between pay an effective rate of 26.5% due to Marginal Relief.
Strategies for tax efficiency:
- Maximise allowable expenses and deductions
- Consider timing of dividend payments to optimise tax rates
- Use employer pension contributions to extract profits tax-efficiency
Changes to National Insurance for Employers
From 6th April 2025, employers will face higher National Insurance Contributions:
- The threshold lowers to £5,000 from £9,100
- Employer National Insurance Contributions rise from 13.8% to 15%
Planning ahead can help businesses manage rising employment costs effectively.
6. Pension Contributions and Tax Relief
Annual Allowance and Carry Forward
The Annual Pension Allowance is £60,000, but high earners see this tapered from £260,000 onwards. You can carry forward unused allowances from the last 3 years to increase contributions.
Inheritance Tax on Pensions
From April 2027, unused pension funds will be subject to Inheritance Tax, impacting those who planned to leave pensions for future generations.
7. Family Tax Planning in 2025
Marriage Allowance
If one spouse earns below £12,570, they can transfer £1,260 of their Personal Allowance to a higher-earning spouse, saving up to £252 per year through Marriage Allowance.
High Income Child Benefit Charge
If your income exceeds £50,000, High Income Child Benefit is gradually reduced, disappearing entirely at £80,000. Pension contributions and Gift Aid donations can also help bring income below the threshold.
8. Tax Efficient Motoring
Electric Vehicle Benefits
Company car tax remains at 2% for electric vehicles until 2025. First-year Capital Allowances still apply for businesses purchasing new electric cars. Employers providing workplace charging stations offer a tax-free benefit to employees.
Double Cab Pickup Tax Rule Changes
From April 2025, most double cap pickups will be taxed as cars rather than goods vehicles, affecting both Benefit-In-Kind charges and Capital Allowances.
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