posted 9th March 2025
How to maximise your finances before the 5 April 2025 deadline
Our money is hard-earned and precious, so it is understandable that parting with it in the form of taxes isn’t something anyone looks forward to. However, understanding how to plan your finances effectively could significantly affect your financial future.
The UK tax system is complex, and many individuals remain unaware of the assistance and allowances available to them. With the current tax year running until 5 April 2025, there’s still time to optimise your finances. Taking advantage of various tax reliefs and allowances can minimise your tax liabilities and secure your financial well-being. Understanding isn’t just about numbers – it can help you plan ahead and make the most of what you earn.
Why personal tax planning matters
Personal tax planning should now be a priority for anyone keen to maximise what they keep from their income or investments. Using proactive measures before the tax year’s end ensures you capitalise on untouched reliefs, exemptions and options to safeguard your financial outlook. Planning your tax liabilities requires understanding the system thoroughly. By staying informed and taking steps promptly, you can make the most out of available allowances while also considering strategic opportunities for the future, such as improving retirement stability or optimising savings.
Key dates in the UK tax calendar
The current tax year ends on 5 April 2025. This date also marks the closure of your annual earnings cycle, which helps determine your tax band. Understanding your position is critical; it ensures you claim every allowance and relief to which you are entitled. From 6 April 2025, the following tax year begins. This transition makes the current period the optimal time to review your position, plan for the future and implement efficient strategies for both short-term and long-term financial goals.
Income Tax and allowances Income
Tax is something most of us deal with, but it doesn’t have to be confusing. Everyone receives a personal allowance. This is the amount of money you can earn without paying any Income Tax. For the 2024/25 tax year, this allowance is £12,570. However, if your income exceeds £100,000, your personal allowance will gradually shrink. Once you go over the £12,570 threshold, your earnings are taxed progressively. This means higher earnings are taxed at higher rates.
Here’s how the tax bands work for this tax year:
• Basic rate (20%) applies to income between £12,571 and £50,270.
• Higher rate (40%) kicks in for income between £50,271 and £125,140.
• Additional rate (45%) comes into play for income over £125,140.
Understanding where your earnings fall can help you manage your taxes better.
Special allowances for savings and dividends
If you have savings or investments, there are extra allowances to know about that might save you money. The Personal Savings Allowance lets you earn some interest on your savings without being taxed. How much depends on your tax bracket: Basic rate taxpayers (20%) can earn up to £1,000 in savings interest tax-free. Higher rate taxpayers (40%) have a lower limit of £500. If you’ve got some money put away, it’s worth checking how this affects you!
Dividend allowance
Do you receive dividends from investments? You can earn up to £500 in dividend income tax-free, regardless of your tax bracket.
Marriage allowance – a simple way to save
Couples can benefit from the Marriage Allowance, which permits one partner to transfer up to £1,260 of their unused Personal Allowance to the other, reducing their tax liability by up to £252. This is often overlooked but can make a significant difference for those who qualify. Only applicable to married couples or those in registered civil partnerships, this allowance works for situations where one partner earns below the personal threshold, while the other is a basic rate taxpayer. Efficiently sharing allowances can optimise your household finances.
Salary sacrifice for pension contributions
Salary sacrifice schemes, available through many employers, are an efficient way to contribute to your pension while reducing tax and National Insurance contributions (NICs). By agreeing to a reduced salary, your employer pays that deduction directly into your pension scheme, reaping tax benefits while boosting your retirement funds. Extra advantages can arise as some employers reinvest their NIC savings into your pension. Over time, this method makes it easier to achieve larger contributions while reducing your current tax liabilities.
Versatile Individual Savings Accounts (ISAs) strategy
Individual Savings Accounts (ISAs) remain a popular, tax-efficient way to save or invest. Whether through Cash ISAs or Stocks & Shares ISAs, your savings benefit from being sheltered from Income Tax, Capital Gains Tax and Dividend Tax. The annual contribution limit for ISAs currently stands at £20,000. Specific ISAs, such as the Lifetime ISA, offer a focus on long-term goals like buying your first home or enhancing retirement savings. With a 25% government bonus on contributions of up to £4,000 yearly, they are a powerful tool for younger savers aged 18-40.
Don’t miss the chance to optimise your tax planning before April 2025. Discover how you can save more by using untapped tax reliefs and allowances. Act now to maximise tax liabilities, protect your savings and make your hard-earned money work smarter.
Contact Finance Connect.UK today and let us introduce you to your perfect IFA.