Personal Tax Advice Planning

Personal Tax Planning Guide

Personal tax planning is a set of legal strategies to minimise tax liabilities and maximise returns. It requires a good understanding of the various allowances, reliefs and investments.

Allowances and Reliefs

The key to personal tax planning is to make the most of the allowances and reliefs available. The Personal Allowance is £12,570 for the 2024/25 tax year, which means that you can earn up to this amount before paying tax. Married couples can also claim the Marriage Allowance, which allows you to transfer any unused Personal Allowance to your spouse.

Income tax relief can be obtained by making pension contributions. You can pay up to £40,000 a year into your pension or 100% of your earnings, whichever is lower, and receive tax relief at your highest marginal rate.

Other important reliefs include:

• ISA allowance (£20,000 per annum)
• Capital Gains Tax annual exempt amount
• Inheritance Tax nil-rate band

Tax-Efficient Investments

Tax-efficient investments are a key part of personal tax planning. Individual Savings Accounts (ISAs) are tax-free savings and investments. Stocks and Shares ISAs can be used to grow your money without paying Capital Gains Tax.

Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) are tax-efficient investments in smaller, higher-risk businesses. EIS provides 30% income tax relief on investments of up to £1 million in a tax year, while VCTs offer 30% relief on investments of up to £200,000.

A financial adviser can help individuals to make sense of the many investment options available and create a tailored tax-efficient plan. They can help with:

• Risk and reward

• Diversification

• Tax efficiency

Tax-Efficient Investment Vehicles

Investment vehicles are a valuable tool for tax-efficient wealth creation. They can be used to reduce tax liabilities and increase investment returns.

Individual Savings Accounts (ISAs)

ISAs are a tax-efficient way to save and invest. The annual ISA allowance allows you to save a significant amount of money tax-free. Stocks and Shares ISAs can be used to generate higher returns through investments in shares and bonds. They can also protect capital gains and dividends from tax.

Cash ISAs are a lower-risk option, offering tax-free interest on savings. The Lifetime ISA is designed for younger savers, offering a government bonus on contributions for first-time home buyers or retirement.

It is important to make the most of the ISA allowance each tax year, as it cannot be carried forward. It is also important to consider your risk appetite and financial goals when choosing the right type of ISA.

Pensions and Tax Relief

Pensions are an important part of tax-efficient retirement planning. Pension contributions attract tax relief at the individual’s marginal rate. Higher and additional rate taxpayers can claim further relief through their tax return.

The annual allowance limits the amount of tax-relieved pension contributions, but carry forward rules allow unused allowances from the previous three tax years to be used, giving more flexibility for those with variable income.

Employer contributions to workplace pensions can also provide additional tax benefits. Salary sacrifice schemes can also be used to increase tax efficiency by reducing National Insurance contributions for the employer and employee.

When you reach retirement, 25% of your pension pot can usually be taken out tax-free, with the rest being taxed as income. It is important to manage your withdrawals carefully to minimise tax liabilities in retirement.

Tax Efficient Pension Planning

Pension planning is an important part of retirement planning. It requires careful consideration of how much you should pay in, how much you are allowed to pay in and how you can make the most of the tax relief available in the UK.

Tax Efficient Pension Contributions

Pension contributions can be made in a tax-efficient manner. You can pay in up to 100% of your income or £40,000 per year, whichever is the lower, and receive tax relief at your highest marginal rate.

Workplace pension schemes usually include employer contributions, which can be thought of as ‘free money’ that can help boost your retirement savings. It is important to pay in enough to get the full employer contribution.

If you have the financial capacity to contribute more, it can significantly enhance the growth of your pension over time. The ‘carry forward’ rule allows you to utilise any unused allowance from the past three tax years to make larger contributions.

Personal pensions can be a useful option for the self-employed or to top up a workplace scheme. They can be especially useful for higher-rate taxpayers, who can claim extra tax relief.

Lifetime And Annual Allowance

The lifetime allowance is the maximum amount that can be held in pension benefits without incurring extra tax charges. This is currently £1,073,100 (2025/26).

If you exceed the lifetime allowance, you could face tax charges of up to 55% on the excess when you take benefits. So it’s important to plan carefully to avoid this.

The annual allowance is a limit on the amount of contributions that can receive tax relief each year. For most people, this is £40,000, but it can be lower if you’re a high earner or have already taken money from your pension flexibly.

Pension providers are required to notify you if you have exceeded the lifetime allowance. It’s important to keep a close eye on how your pension is growing and seek advice to ensure you make the most of your contributions within these limits.

Tax For High Earners

High earners face different tax issues and opportunities. It’s important to understand the implications of higher tax bands and to use effective strategies to reduce tax liability while remaining tax compliant in the UK.

It’s important to understand and manage corporation tax liability within Corporation Tax Self Assessment (CTSA). Under CTSA, it is the responsibility of the business owner to accurately calculate the corporation tax liability. Effective corporate tax planning is important to reduce corporate tax exposure and improve financial performance. Owner-managed businesses face particular challenges when it comes to corporation tax liability. Corporation tax services can help business owners with tax return preparation and compliance, taking the administrative burden off their shoulders and ensuring accurate tax calculations.

High Income Tax Bands

In the UK, high earners are often classified as additional rate taxpayers, which applies to those earning more than £150,000 per year. This rate applies to income above this level and is charged at 45%.

The personal allowance is £12,570, but this is reduced by £1 for every £2 earned above £100,000. This means that there is a marginal tax rate of 60% between £100,000 and £125,140.

High earners should also be aware of the dividend allowance, which allows you to receive a certain amount of dividend income tax-free. This allowance has been reduced in recent years.

National Insurance contributions also increase for higher earners, which can further reduce net income.

Tax Planning

Tax planning can help high earners to make the most of their finances. Effective corporate tax planning is important to reduce tax liability and improve financial performance. Corporation tax services can help with tax return preparation and compliance.

Maximising pension contributions is a key strategy, as these reduce taxable income and may help you fall below certain thresholds.

It’s also important to use ISAs to save and invest tax-free. The ISA allowance should be used in full wherever possible.

Tax-efficient investments, such as Enterprise Investment Schemes (EIS) or Venture Capital Trusts (VCT), can provide tax relief and are particularly useful for high earners.

Timing income and expenses around the tax year-end can help manage tax liability. Donations to charity via Gift Aid can also provide tax relief.

If you are a business owner, structuring your remuneration package to include dividends and salary can be tax-efficient. However, you should be aware of IR35 rules for contractors.

Strategic Gifting And Inheritance Planning

Strategic gifting and a good understanding of the key thresholds are essential for effective inheritance tax planning. These strategies can help reduce the potential tax liability and help protect your wealth for future generations.

Gifting Allowances

Inheritance tax (IHT) planning often involves making the most of gifting allowances. Each person has an annual gifting allowance of £3,000, which can be carried forward for one year if it is not used. This means that a couple could gift up to £12,000 in one tax year without paying IHT.

Other exemptions include:

• Gifts of up to £250 per person to as many people as you like

• Gifts to help with wedding costs (£5,000 for a child, £2,500 for a grandchild, £1,000 for anyone else)

• Gifts from surplus income

You should keep a record of all gifts you make, as they may be subject to the seven-year rule for potentially exempt transfers.

IHT Thresholds and Reliefs

The current inheritance tax (IHT) threshold, commonly referred to as the nil-rate band, is set at £325,000 per individual. For married couples and civil partners, this allowance can be combined, effectively raising the threshold to £650,000.

An additional residence nil-rate band applies when passing on a main residence to direct descendants:

This can increase the total IHT-free threshold to £500,000 per person or £1 million for couples.

Various reliefs can also reduce IHT liability:

• Business Relief: Up to 100% on qualifying business assets

• Agricultural Relief: Up to 100% on qualifying agricultural property