Are you paying too much tax? Or worried about future tax bills? If so, then now is the time to get organised.
You should manage your personal tax affairs to ensure you have a solid financial strategy moving forward. This guide to personal tax planning will touch upon tax-smart strategies that could save you thousands of pounds a year.
How do you ensure you don’t get clobbered by HMRC? It means doing your homework, meticulously organising your assets and not leaving yourself exposed to hefty tax bills or penalties. The UK tax system can be fiendishly complicated to navigate, which is why it is vital you examine your spending and are able to fully take advantage of tax planning options. Before you can reduce your tax bill, understand how it is calculated, and which allowances you are eligible for.
A personal allowance is equivalent to the first £12,570 in income. Lower earners who are married are able to reduce tax liabilities by transferring some of their unused personal allowance by using the Marriage Allowance. This provides that 10% of the personal allowance can be transferred to the spouse if one party in the relationship earns an income beneath the personal allowance.
ISAs
Individual Savings Accounts (ISAs) have been a hit in the UK, with the Bank of England recording a £2.2 billion increase in Cash ISA deposits from 2024 to 2025. You might be tempted to maximise your ISA, which allows you to invest up to £20,000 a year, incurring zero tax on interest, capital gains tax (CGT) or dividends. People who sell property, investments or other assets are liable for CGT.
However, if you use your CGT allowance, it is possible to make gains of up to £3,000 per year tax-free. Investing in an ISA is similar to when people in the US contribute to a Roth IRA. This product has family firmly in mind. They can be used by grandparents or parents to transfer funds to future generations to help them save for their future. Any income or capital gains generated is tax-free and not taxed upon withdrawal.
Income tax
With income tax, top earners pay 40 to 45% – although there are legal ways of paying a smaller rate.
For salaries of £260,000 and above, the tapered or reduced annual allowance gradually reduces by £1 for every £2 above the minimum £10,000 threshold. To see if you have a reduced or tapered annual allowance in a tax year, you’ll need to check your tax code, calculate your net income, pension savings, threshold income and adjusted income over that tax year.
Inheritance tax
If you are considering your retirement plans, recent changes to inheritance tax (IHT) have meant passing on wealth now to your children requires more careful planning. IHT currently applies at 40% on estates over £325,000, but there are ways to legally reduce or avoid these taxes, thus ensuring more of your money goes to family or benevolent causes.
This can be achieved by using the £3,000 annual gift allowance, making larger gifts earlier under the ‘seven years rule’, or opting for smaller £250 gifts, which can be made more regularly during a tax year. Charity or philanthropic donations can also lower tax bills, enabling organisations to reclaim 25% on top. You might secure tax relief incorporating payments via a work Pay As You Earn scheme or including provisions in your eventual will settlement.
Pension contributions
With pension contributions, the good news is that you receive tax relief at the highest tax rate. It is a good idea to maximise pension contributions to reduce taxable income. Some people may opt to make use of salary sacrifice schemes, which can also serve to increase your pension pot.
Contributions of up to £60,000 per annum enjoy full tax relief. The annual UK pension contribution capacity in 2025 to 2026 is the lower of your relevant earnings. Every adult aged under 75 can contribute up to £3,600 gross or £2,880 net per year, irrespective of income.
For more advice in relation to efficient personal tax planning in Cheshire, give our specialist team at Hartey Wealth Management a call today. Investing is as much about minimising tax liabilities as generating wealth. Set up a consultation and get carefully tailored financial advice to ensure you don’t get unfairly stung by the taxman.
