UK Tax Planning Guide 2025

Key Tax Allowances 2025/26

Make sure you're using all the tax-free allowances available to you:

Top Tax Planning Strategies

Tax Planning by Income Level

Earning Under £50,270 (Basic Rate)

• Claim Marriage Allowance if spouse earns under £12,570
• Use full ISA allowance for tax-free investment growth
• Consider pension contributions for 20% tax relief
• Claim all work-from-home expenses (£6/week flat rate)
• Use trading allowance for side income under £1,000

Earning £50,270 - £100,000 (Higher Rate)

• Maximise pension contributions - 40% tax relief
• Consider salary sacrifice to reduce taxable income
• Use spouse's lower tax bands for investments
• Consider childcare vouchers if still available from employer
• Claim professional subscriptions and fees

Earning Over £100,000

• Pension contributions can restore Personal Allowance
• Consider company car vs car allowance carefully
• Use salary sacrifice to stay below £100,000
• Plan timing of bonuses across tax years
• Consider incorporation for highest earners

Key Tax Planning Dates

Tax Relief Opportunities

Tax Planning for Self-Employed

Allowable Business Expenses

Claim all legitimate expenses to reduce taxable profits:

Tax-Efficient Salary Structures

Structuring your remuneration package efficiently can produce significant tax savings. Two of the most powerful tools available to employees are salary sacrifice arrangements and pension contributions through payroll.

Salary Sacrifice Explained

Salary sacrifice (sometimes called salary exchange) is a contractual arrangement where you agree to give up part of your gross salary in exchange for a non-cash benefit, most commonly employer pension contributions. The key advantage is that the sacrificed amount is not subject to either Income Tax or employee National Insurance contributions (NICs).

For the 2025/26 tax year, a higher rate taxpayer earning £60,000 who sacrifices £5,000 into their pension saves:

• Income Tax: £5,000 x 40% = £2,000 saved
• Employee NI: £5,000 x 2% = £100 saved (above UEL) or £5,000 x 8% = £400 (below UEL)
• Employer NI: £5,000 x 15% = £750 saved (often shared with employee)
• Total potential saving: Up to £2,690 compared to taking salary and contributing personally

Salary sacrifice is also available for other benefits including cycle-to-work schemes, ultra-low emission company cars, workplace nursery provision, and technology schemes. However, note that reducing your gross salary may affect mortgage applications, statutory payments (maternity pay, sick pay), and your entitlement to certain state benefits.

Pension Contributions Through Payroll

If salary sacrifice is not available through your employer, you can still benefit from pension contributions. Under a net pay arrangement, contributions are deducted from your gross salary before tax, so you receive full tax relief automatically at your marginal rate. Under a relief at source arrangement, contributions are taken from your net pay and your pension provider claims basic rate relief (20%) from HMRC. Higher and additional rate taxpayers must then claim the extra relief through their Self Assessment tax return.

ISA Planning for 2025/26

Individual Savings Accounts (ISAs) remain one of the most valuable tax shelters available to UK residents. The annual ISA allowance for 2025/26 is £20,000, and this can be split across different ISA types within a single tax year.

Types of ISA Available

The total across all ISA types cannot exceed £20,000 in any single tax year. ISA allowances are "use it or lose it" -- any unused allowance cannot be carried forward. Married couples each have their own £20,000 allowance, meaning a couple can shelter up to £40,000 per year from tax entirely.

ISA Strategic Tips

• Use Stocks & Shares ISAs for long-term growth to shelter both dividends and capital gains from tax
• Consider a Lifetime ISA if you are saving for your first home (up to £450,000 property value) -- the 25% bonus is a guaranteed return
• Transfer old Cash ISAs to Stocks & Shares ISAs for better long-term returns without using current year allowance
• Use a "Bed and ISA" strategy: sell investments outside an ISA to crystallise gains within your £3,000 CGT allowance, then repurchase them inside an ISA for future tax-free growth

Marriage Allowance and Couples Planning

The Marriage Allowance allows a spouse or civil partner who earns less than the Personal Allowance (£12,570) to transfer £1,260 of their unused allowance to their partner, provided the receiving partner is a basic rate taxpayer (earning between £12,571 and £50,270). This produces a guaranteed annual tax saving of £252.

How to Claim Marriage Allowance

Apply online via the GOV.UK Marriage Allowance page. The claim can be backdated for up to 4 years, meaning if you have never claimed before, you could receive a lump sum of up to £1,260 in backdated tax savings (4 years x £252 plus the current year). HMRC will adjust the higher earner's tax code so the saving is applied automatically through PAYE.

Couples Tax Planning Beyond Marriage Allowance

For couples where both partners earn taxable income, consider these strategies:

• Transfer assets to lower earner: If one partner is a basic rate taxpayer and the other is higher rate, transferring savings or investments to the lower earner means income is taxed at 20% rather than 40%
• Split property ownership: Beneficial for jointly owned rental property -- a form 17 declaration can vary the income split from the default 50/50 to match actual ownership shares
• Use both CGT allowances: Transfer assets between spouses before selling to use two £3,000 annual exempt amounts instead of one
• Maximise both Personal Allowances: Ensure neither partner has income sitting in higher bands while the other has unused Personal Allowance

Tax Relief on Charitable Giving (Gift Aid)

Gift Aid is a scheme that allows charities to claim an extra 25p from HMRC for every £1 you donate, at no extra cost to you as a basic rate taxpayer. However, the real benefit for higher and additional rate taxpayers is the ability to claim additional tax relief through Self Assessment.

How Gift Aid Tax Relief Works

When you donate £100 to charity with Gift Aid:

• The charity claims 25% from HMRC, receiving a total of £125
• A higher rate (40%) taxpayer can claim an additional £25 through Self Assessment (the difference between 40% and 20% of £125)
• An additional rate (45%) taxpayer can claim an extra £31.25 (the difference between 45% and 20% of £125)

Gift Aid and the £100,000 Threshold

Gift Aid donations can be particularly powerful for those earning between £100,000 and £125,140, where the effective marginal tax rate is 60% due to the tapering of the Personal Allowance. Gift Aid donations extend your basic rate band and can effectively restore your Personal Allowance. For every £1 of gross donation, you reduce your adjusted net income by £1, which can bring you back below the £100,000 threshold and restore some or all of your Personal Allowance.

Capital Gains Tax Planning

Capital Gains Tax (CGT) applies when you sell or dispose of an asset that has increased in value. For the 2025/26 tax year, the annual exempt amount is just £3,000 (reduced from £6,000 in 2023/24 and £12,300 in 2022/23), making proactive CGT planning more important than ever.

CGT Rates for 2025/26

Key CGT Planning Strategies

• Use your annual allowance every year: With only £3,000 available, consider selling investments each year to crystallise gains within the allowance
• Bed and ISA: Sell assets to use your CGT allowance, then immediately repurchase the same investments inside an ISA where future gains are tax-free
• Spousal transfers: Assets transferred between spouses are CGT-free. Transfer to the lower-earning spouse before selling to benefit from their lower CGT rate and their own £3,000 allowance
• Offset losses: Capital losses can be set against gains in the same year or carried forward indefinitely. Report losses to HMRC within 4 years of the end of the tax year

Inheritance Tax Planning Basics

Inheritance Tax (IHT) is charged at 40% on estates exceeding the nil-rate band of £325,000. An additional residence nil-rate band (RNRB) of £175,000 is available when passing your home to direct descendants, giving a combined threshold of £500,000 per person (or £1 million for married couples). The RNRB tapers away for estates over £2 million.

IHT Planning Strategies

• Use your annual gift exemption: You can give away £3,000 per tax year IHT-free (£6,000 if last year's allowance was unused). Small gifts of up to £250 per person are also exempt
• Regular gifts from income: Gifts made from surplus income (not capital) that form part of your normal expenditure are exempt from IHT with no upper limit
• Seven-year rule: Gifts to individuals become fully exempt from IHT after 7 years. Between 3 and 7 years, taper relief reduces the IHT rate on a sliding scale
• Pension planning: Pensions sit outside your estate for IHT purposes, making them an extremely tax-efficient way to pass on wealth
• Life insurance in trust: A life insurance policy written in trust can provide funds to pay an IHT bill without the proceeds forming part of your estate

Self-Assessment Tips and Best Practices

If you are required to file a Self Assessment tax return, these practical tips will help you avoid penalties and ensure you claim everything you are entitled to.

Key Self-Assessment Deadlines for 2025/26

Practical Tips for Filing

• File early: You can file from 6 April following the end of the tax year. Filing early does not mean paying early -- you still pay by 31 January. But early filing means you know what you owe sooner and can budget accordingly
• Keep records for 5 years: HMRC can open an enquiry within 12 months of receiving your return (or longer in cases of carelessness or fraud). Keep all receipts, bank statements, P60s, and dividend vouchers for at least 5 years after the 31 January submission deadline
• Claim all allowable expenses: Self-employed individuals should claim every legitimate business expense. Commonly missed deductions include professional subscriptions, home office costs (£6/week flat rate or actual proportion), training courses relevant to your trade, and business mileage at 45p/mile (first 10,000 miles)
• Reduce payments on account: If your income has dropped or you expect a lower tax bill, you can apply to reduce your payments on account through your online HMRC account. But be careful -- if you reduce by too much, you will face interest charges on the underpayment
• Use HMRC's online tools: Check your tax code, view your tax calculation, and claim refunds through your Personal Tax Account at gov.uk/personal-tax-account

When to Get Professional Tax Advice

Consider consulting a tax adviser or accountant if:

• You earn over £100,000 (Personal Allowance tapering)
• You have multiple income sources (employment, self-employment, rental)
• You're selling property or significant investments
• You're considering incorporation
• You have overseas income or assets
• You're planning inheritance or gifts
• Your tax affairs are complex or you've had HMRC enquiries

Common Tax Planning Mistakes

• Not using allowances: ISA, pension, CGT allowances are "use it or lose it"
• Wrong tax code: Check your payslip - incorrect codes mean over/underpayment
• Missing deadlines: Late Self Assessment = £100+ penalties
• Ignoring NI: National Insurance is often forgotten but can be substantial
• Poor record keeping: Missing receipts = missing deductions
• Forgetting marriage allowance: Easy £252/year many couples miss

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