How to make the most of your tax allowances
Tax bills are on the rise, but that doesn’t mean you should be paying more tax than you need to. With frozen thresholds and shrinking allowances, now’s the time to be smart about your money and grab every tax-saving opportunity going.
16 ways to keep more of what you earn in 2025:
1. Maximise Your ISA Allowance
Any returns within an ISA are shielded from capital gains tax (CGT) and income tax, making it a tax-efficient way to invest and save. You can put away up to £20,000 per year into ISAs.
2. Increase Your Pension Contributions
Adding more to your pension can reduce your taxable income, keeping you in a lower tax bracket. Plus, you’ll get tax relief at your highest rate—so it’s a win-win for your future and your current tax bill.
How to do it: Speak to your employer about increasing workplace pension contributions or consider a Self-Invested Personal Pension (SIPP) if you’re self-employed.
3. Claim Marriage Tax Allowance
If you or your partner earns less than the personal allowance (£12,570) and the other is a basic-rate taxpayer, you can transfer £1,260 of the allowance—cutting your tax bill by up to £252 a year.
4. Make Use of Salary Sacrifice Schemes
Some employers offer salary sacrifice schemes where you exchange part of your salary for benefits like pension contributions, cycle-to-work schemes, or even electric vehicles—reducing your taxable income in the process.
5. Claim Tax Relief on Work Expenses
If you work from home, buy work-related equipment, or wear a uniform, you may be able to claim tax relief on these expenses.
6. Make Use of the Capital Gains Tax Allowance
You can make gains of up to £3,000 in a tax year without paying CGT. If you’re selling investments, property, or assets, consider spreading sales over multiple tax years to maximise this allowance.
7. Transfer Assets to Your Spouse
If one of you pays a lower rate of tax, transferring investments or savings can cut your household’s tax bill.
8. Claim Losses Against Capital Gains
If you’ve sold investments at a loss, you can use these losses to reduce the amount of CGT you owe on future gains. To do this, you need to report the loss to HMRC within 4 years of it occurring.
9. Use Your Personal Savings Allowance
Basic-rate taxpayers can earn £1,000 in interest tax-free, while higher-rate taxpayers get £500. If you’re exceeding your allowance, consider moving money to an ISA or transferring savings to a lower-earning partner.
10. Donate to Charity with Gift Aid
Higher-rate taxpayers can claim tax relief on donations through Gift Aid, reducing taxable income while supporting a good cause.
11. Plan for Inheritance Tax with Gifting
You can give away up to £3,000 per year tax-free. If you survive for seven years after making a gift above this amount, it falls outside your estate for inheritance tax purposes.
12. Use the Residence Nil-Rate Band
If passing your home to direct descendants, you may qualify for an extra £175,000 inheritance tax allowance on top of the £325,000 personal threshold.
13. Consider a Junior ISA (JISA) for Your Child
You can save up to £9,000 per year in a tax-free Junior ISA for your child, helping build their future while keeping the money outside your estate for inheritance tax purposes.
14. Consider Investing in VCTs or EIS
Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) offer generous tax breaks, including 30% income tax relief, though they come with higher risk. These are only likely to come into play after you have already used up all of your pension and ISA allowances.
15. Rent Out a Room Tax-Free
Under the Rent a Room Scheme, you can earn up to £7,500 per year tax-free from renting out a furnished room in your home.
16. Offset Rental Property Expenses
Landlords can deduct certain costs like mortgage interest, maintenance, and letting agent fees to reduce their taxable rental income.
FAQs
1. What is the best way to legally pay less tax in the UK?
Maximising pension contributions, using ISAs, and leveraging salary sacrifice schemes are some of the most effective ways to reduce your taxable income.
2. How much can I earn before paying tax in 2025?
The personal allowance remains at £12,570. Earnings above this threshold are subject to income tax at the applicable rates.
3. What are the best tax-saving tips for landlords?
Using the Rent a Room Scheme, offsetting rental expenses, and holding properties in a tax-efficient structure can help landlords reduce tax liability.
Final Thoughts: Nobody wants to pay more tax than they have to. By making smart financial choices, you can take control and keep more of your money working for you. If you’re not sure where to start? A financial adviser can help you make the most of your allowances and plan ahead for tax efficiency.
Women’s Wealth is here to help you take control of your finances. Book a chat with us today!
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