Personal tax planning in 2024/2025
Navigating your finances with confidence
Our guide to personal tax planning 2024/2025 is designed with your needs in mind. It provides clear, practical advice to help you optimize your tax situation. The foundation of effective personal tax planning 2024/2025 is a solid understanding of your tax obligations.
Entering the 2024/25 tax year, taking a proactive stance on personal finance management has become increasingly crucial.
Navigating the complexities of income tax, evaluating investment opportunities, or planning for the future requires an understanding of the UK tax system. Our guide to personal tax planning 2024/2025 is a good place to start.
Income tax: Know your rates and allowances
Income tax is charged on various forms of income, including wages, pensions and savings interest, but everyone is entitled to a personal allowance. It’s worth noting that those earning above £100,000 have a reduced personal allowance.
For the 2024/25 tax year, this allowance remains at £12,570. Beyond this, tax bands are applied progressively. Therefore, the more you earn, the higher the rate of tax you will pay income over the allowance.
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- Basic rate (20%) applies to income over £12,570 up to £50,270.
- Incomes between £50,271 and £125,140 are subject to a higher tax rate of 40%.
- Additional rate (45%) affects income above £125,140.
Understanding your tax bracket is the first step to managing tax liabilities effectively.
Personal Savings Allowance and Dividend Allowance
For savers and investors, the Personal Savings Allowance (PSA) and Dividend Allowance present opportunities to earn income with favourable tax treatment.
The PSA allows basic rate taxpayers to earn up to £1,000 in savings interest without paying tax, which decreases to £500 for higher-rate taxpayers.
A higher tax rate of 40% is applied to income ranging from £50,271 to £125,140.The Dividend Allowance allows for £500 of dividend income to be earned tax-free, irrespective of one’s income tax bracket.
Marriage allowance
Married couples and those in civil partnerships could be eligible to apply for the marriage allowance.
Meaning, individuals whose earnings are insufficient to make use of the personal allowance can transfer the unused portion to their spouse or civil partner, within a specified limit. This benefit is not available if the recipient spouse or partner pays tax at the higher or additional rate.
For the tax year 2024/25, the maximum transferable amount is £1,260.
Maximising your allowances
One of the simplest and most effective tax planning strategies is to make sure you’re fully utilising all available allowances.
ISAs: A tax-efficient haven for your savings
Individual savings accounts (ISAs) remain a cornerstone of personal tax planning. With a generous annual allowance of £20,000 for the 2024/25 tax year, ISAs offer a tax-efficient shelter for your savings and investments, with no tax on interest, dividends or capital gains.
Whether you opt for a cash ISA, stocks and shares ISA, or the innovative lifetime ISA, this allowance can significantly enhance your wealth, tax-free.
In the Spring Budget 2024, the Government announced the introduction of the UK ISA. The new £5,000 allowance, in addition to the existing ISA allowance, will provide a new tax-free savings opportunity.
Pension contributions: Investing in the future
Contributing to a pension secures your future and it offers immediate tax relief. Contributions are topped up by the government at your highest rate of income tax. Meaning, it is one of the most tax-efficient forms of saving.
For the 2024/25 tax year, the annual allowance for pension contributions increases to £60,000, or 100% of earnings, whichever is lower. Utilising this allowance reduces taxable income and the amount of tax owed. The allowance is also be tapered down for high earners.
Planning for capital gains
Capital gains tax (CGT) is levied on the profit made when a sale or the ‘dispose of’ an asset that has appreciated in value. It is important to point out, it’s the profit or ‘gain’ from the sale that is subject to taxation. The essence of CGT is to tax the increase in value of an asset from the time acquired to the time it is sold, covering a range of assets including property, stocks and shares.
For the fiscal year 2024/25, there is an annual exempt amount set at £3,000. This exemption allows individuals to realise gains of up to this limit without paying any CGT. This threshold provides a strategic opportunity for taxpayers to manage assets in a tax efficient manner. Therefore, by planning the sale of assets, such as real estate, stocks or collectables, individuals will ensure that gains do not exceed the exempt amount in any given tax year, thereby avoiding CGT on those gains.
Strategic planning involves timing the sale of assets to take full advantage of the annual exemption.
For instance, if an individual anticipates a gain that exceeds the exemption limit, they could consider spreading the disposal of assets over multiple tax years. This allows for the utilisation of the annual exempt amount in each year. Meaning, it could reduce the overall tax liability.
Inheritance tax planning: Safeguarding your legacy
Inheritance tax planning is a crucial aspect of long-term financial planning. With the IHT threshold frozen at £325,000, any estate valued above this amount may be subject to a 40% tax rate on the excess.
Strategies such as gifting, placing assets into trust or investing in IHT-efficient investments can mitigate potential tax liabilities.
Contact an accountant or financial advisor to discuss the additional exempt amount for residential properties, in addition to the standard £325,000.
Navigating changes and seeking professional advice
The tax system is constantly changing. Every Budget brings changes to allowances, rates and tax reliefs. Staying on top of the changes will help you manage your tax affairs in the best way possible. However, seeking personalised tax advice can be invaluable. A tailored approach, that takes into account individual circumstances, is always best to help maximise tax efficiency and financial well-being.
As we navigate the 2024/25 tax year, remember that effective tax planning is a continuous process. By understanding your obligations, utilising available allowances and seeking professional advice, you can take control of your financial future.
Here are a few ways an accountant can assist in navigating changes:
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- Identifying opportunities for tax savings: An accountant can review your financial situation to identify any opportunities to save on taxes.
- Staying compliant: Tax laws are constantly changing. Accountants can ensure you remain compliant, avoiding penalties and fines. They have a clear understanding of current regulations, as well as knowledge of upcoming changes that may affect your financial planning.
- Strategic financial planning: Accountants can assist in long-term financial planning, i.e. retirement planning, investments, business growth strategies.
- Risk management: By understanding the nuances of tax legislation, accountants can identify potential risks and advise on how to mitigate them.
- Representation in tax investigations: Should you face a tax investigation, having an accountant can be invaluable. They can also represent you, and handle communications with tax authorities.
- Whether you’re selling a property, starting a business or planning for retirement, accountants can provide personalised advice to optimise your tax position during significant life events.
Educating on financial decisions
An accountant doesn’t just manage your finances, they can also advise you on the implications of financial decisions. Further more, they can help you understand complex tax issues, enabling informed decision-making.
Talk to an expert
By leveraging the expertise of an accountant, you can navigate the complex tax landscape with greater confidence. This will ensure your financial planning is compliant and optimised for your specific situation.
Need assistance? Get in touch for advice on your personal tax planning 2024/2025.
For the latest tax rates and allowances, download our 2024/25 tax card.