When the new tax year rolls around, many of us breathe a sigh of relief; last year’s tax affairs are sorted.
But this isn’t just a time to relax; it’s also the ideal moment to prepare for the tax year ahead. Being proactive at the start of the tax year can significantly reduce your tax bill and put you ahead of the curve.
Why Start Now?
In simple terms, early planning offers the best chance for savings. Tax planning isn’t merely a year-end rush; the effective strategies you implement now can yield compounding benefits over time. Consider it like planting seeds early; you will enjoy the benefits later.
Practical Steps You Can Take
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Maximise Your Personal Allowances: Ensure you and your spouse or civil partner fully utilise your allowance (£12,570 for 2025/26). If one of you earns significantly less, consider transferring part of your allowance through the Marriage Allowance.
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Utilise Pensions to Lower Taxes: Pension contributions can greatly decrease your taxable income. If your earnings are around or exceed £100,000, these contributions are even more beneficial as they assist in restoring your personal allowance.
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Invest Tax-Efficiently: Consider putting money into ISAs or investment bonds to generate tax-free or tax-deferred returns. Every pound earned tax-free is a pound fully in your pocket.
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Gift Wisely for Inheritance Tax: Everyone has a £3,000 annual gifting exemption; unused amounts can be carried forward for one year, potentially doubling this exemption. Additionally, consider making small gifts of up to £250 per individual that are free from inheritance tax.
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Capital Gains Tax Planning: Use your annual exemption (£3,000) effectively. Timing disposals around the end of the tax year can enable you to utilise two annual exemptions in close succession, maximising savings.
Don’t Overlook Savings and Investments
For married couples, ensuring that both partners fully utilise their personal savings and dividend allowances (£500 and £1,000 for savings, £500 for dividends in 2025/26) can significantly enhance joint tax efficiency.
Consider EISs and VCTs if You’re a High Earner
Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) provide appealing tax reliefs if you’re willing to accept higher risks and lower liquidity. These schemes can greatly reduce tax liabilities.
Pension Opportunities
You can contribute up to £60,000 to pensions each year. Additionally, utilise carry-forward rules to maximise unused allowances from previous years. Pension contributions can also reclaim lost child benefits for higher earners.
Tax planning might seem complex, but you don’t have to navigate it alone. We’ve compiled a comprehensive yet easily digestible guide to simplify your planning. There is no substitute for tailored financial advice, but this can help.
You can schedule a free, no-obligation chat to see how we could help here. A guide on selecting a financial advisor is also available here.
The guide is for informational purposes only and is not a substitute for personalised financial advice. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Individuals or companies should only act upon such information if they receive appropriate professional advice after thoroughly examining their particular situation. We cannot accept responsibility for any loss due to acts or omissions taken regarding the content. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change, and their value depends on the individual circumstances of the investor. The value of your investments can go down and up, and you may get back less than you invested. Tax laws and allowances are subject to change, and readers should consult with a qualified advisor for the most current information.
