As the 2024/25 tax year begins, personal tax planning is essential to optimise your financial situation.

This guide will give you an overview of some key strategies to consider, helping you to plan your tax obligations in the most beneficial way.

Personal allowance and tax bands

The UK’s personal tax allowance is fixed at £12,570 for the 2024/25 tax year, meaning that no income tax is charged on earnings up to this amount. This allowance is critical for taxpayers to optimise their tax liability effectively.

For personal tax planning, consider how your income can be structured, perhaps through salary sacrifice schemes to fully utilise this allowance. Beyond this threshold, your earnings are taxed at the basic rate (20%) up to £50,270, at the higher rate (40%) up to £150,000, and at the additional rate (45%) for income above that.

Understanding these bands is vital for planning, especially for those near the thresholds, as strategic income distribution can potentially reduce overall tax liability.​

Leverage ISA contributions

Investing in Individual Savings Accounts (ISAs) is a highly tax-efficient method of saving. You can contribute up to £20,000 per year across different types of ISAs, such as Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs, each catering to different saving goals and risk appetites.

All returns, whether from interest, dividends, or capital gains, are exempt from tax, making ISAs an advantageous option for those looking to save without incurring a tax liability. This tax exemption applies to both the accumulation and withdrawal phases, providing significant flexibility and benefits in long-term financial planning​.

Pension contributions

The annual pension allowance has been increased, allowing for up to £60,000 in contributions each year. Contributions to pensions can significantly reduce your taxable income and grow free of income and capital gains tax. It’s a powerful tool for long-term savings and tax planning, particularly attractive for higher earners due to the substantial tax relief available​​.

Capital gains tax strategy

Effective planning for capital gains tax (CGT) is vital, especially when dealing with assets like property or shares, where the potential for significant appreciation exists. In the UK, each individual has a CGT allowance, currently £3000, which is the amount of gain that is tax-free each year.

Understanding this can be crucial when deciding the best time to sell assets. Timing disposals to align with this allowance can substantially reduce CGT liability. For example, staggering the sale of assets across different tax years can utilise more than one year’s allowance, thus lowering the overall tax.​

Inheritance tax planning

The inheritance tax threshold stands at £325,000. Planning how to pass on assets can ensure that your estate is handled as efficiently as possible from a tax perspective. Strategies such as gifting assets during your lifetime or setting up trusts can be beneficial​​.

Marriage allowance

For eligible couples, transferring a portion of your personal allowance to your lower-earning spouse can reduce your combined tax liability. This can save part of the tax that the higher earner would have paid on that amount​​.

National Insurance savings

With changes to National Insurance contributions (NICs), it’s worthwhile to assess how these can affect your net income. For the self-employed, particular attention should be paid to the Class 2 and Class 4 NI contributions, which have seen reductions and adjustments​​ down to 6%.

Final thoughts

Effective personal tax planning involves a comprehensive understanding of the tax regime and its implications for finances.

By taking proactive steps and consulting with a tax professional, you can significantly enhance your financial well-being and ensure compliance with tax obligations. Considering your specific circumstances is crucial for more tailored advice.

At Thomas Barrie & Co., we understand that tax rules and allowances are subject to change. We always verify the latest regulations to help you make informed decisions.

Contact us for personal tax planning support.