How to maximise tax reliefs this year: January tips for savvy planners.

In an increasingly complex financial landscape, understanding and utilising tax reliefs effectively can significantly reduce your overall tax liability and save you money over the long term. Whether you're a business owner, employee, or investor, maximising tax reliefs is an essential strategy to keep more of your hard-earned money. 

1. Pension contributions

One of the most effective ways to reduce your tax bill is by contributing to a pension. Contributions to a pension scheme, such as a personal pension or a workplace pension, qualify for tax relief. The government provides tax relief at your marginal rate of income tax, meaning higher earners get higher relief.

For example, if you're a basic rate taxpayer (earning £50,000 a year), for every £80 you contribute to your pension, the government will add £20. If you're a higher rate taxpayer, you can claim back additional relief via your self-assessment tax return. 

Key points to consider:

• The annual allowance for pension contributions is the higher of £60,000 or your relevant UK earnings (2024/25 tax year),
• If you have already accessed your pension, you are subject to the money purchase annual allowance, which means the maximum you can contribute to your pension is £10,000 per annum (2024/2025).
• A person cannot usually receive tax relief on pension contributions worth more than 100% of their annual earnings. People can still contribute £2,880 (net) a year into a pension even if they have no relevant UK earnings.
• If you have a ‘adjusted income’ of more than £260,000, you will see your annual allowance reduce by £1 for every £2 of adjusted income over the £260,000 limit. This is called the Tapered Annual Allowance and can be as little as £10,000. Broadly speaking, your adjusted income is your total taxable income plus any employer pension contributions.

2. Individual Savings Accounts (ISAs)

ISAs are a great way to maximise your savings while avoiding tax on interest, dividends, and capital gains. Each tax year, you can contribute up to £20,000 across different types of ISAs, including:

• Cash ISAs
• Stocks and shares ISAs
• Innovative finance ISAs
• Lifetime ISAs (for first-time homebuyers or retirement savings meeting certain criteria)

Key points to consider:

• The £20,000 limit is a combined total across all ISAs, so it’s important to allocate your contributions wisely.
• Lifetime ISAs offer an additional bonus from the government—up to £1,000 annually (subject to certain conditions).

3. Capital Gains Tax relief

Capital Gains Tax (CGT) is levied on the profit from selling assets like property, shares, or business interests. However, several tax reliefs are available to reduce the CGT liability.

Business Asset Disposal Relief allows business owners to pay a reduced CGT rate of 10% (tax year 2024/2025) on the sale of qualifying business assets, up to a lifetime limit of £1 million. This is particularly valuable for those selling their business or part of it.

Private Residence Relief can also significantly reduce or entirely eliminate CGT on the sale of your home, provided certain conditions are met. 

Key points to consider:

• Make sure you’re aware of the exemptions and allowances available, such as the annual CGT exemption (£3,000 for 2024/25).
• Consider timing asset sales to optimise your CGT position, especially if you have unused annual exemptions.

4. Marriage allowance

If you’re married or in a civil partnership, you could benefit from the Marriage Allowance, which lets one partner transfer part of their personal allowance to the other. This can be used if one partner has unused personal allowance (the tax-free income threshold) and the other is a basic rate taxpayer.

For example, in the 2024/25 tax year, the personal allowance is £12,570, and you can transfer £1,260 of it to your spouse or civil partner. This can reduce their tax bill by up to £252 a year.

Key points to consider:

• The lower earner must normally have an income of less than the personal allowance  
• The recipient must be a basic rate taxpayer (earning between £12,570 and £50,270 for the 2024/25 tax year)
• You must apply for Marriage Allowance, and it can be backdated for up to four years.

5. Making the most of your tax-free allowances

In addition to specific tax reliefs, you should also be aware of the various tax-free allowances available to individuals. For example, the savings allowance lets basic rate taxpayers earn up to £1,000 in interest tax-free, while higher rate taxpayers have a £500 allowance. Similarly, the dividend allowance lets individuals receive £1,000 of dividend income tax-free.

Key points to consider:

• Always be mindful of how you structure your income and investments to make full use of these tax-free allowances.

Maximising tax reliefs is a powerful tool in reducing your overall tax burden. By understanding the reliefs available, planning, and seeking professional advice, you can ensure that you keep more of your income and investments working for you. You’re unsure about how to maximise your tax reliefs, it’s worth speaking to a qualified financial adviser who can help you tailor a strategy suited to your circumstances.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.