Chancellor Rachel Reeves wants your tax revenues – don’t make it easy for her (Image: Getty)
Tax thresholds and allowances will be frozen again from April 6, eroding their value in real terms once again.
Taxpayers buckling under today’s record-high burden should take the fight to Chancellor Rachel Reeves by mopping up every tax break they can either side of that date, said Laura Suter, director of personal finance at AJ Bell. She’s suggested 10 ways to fight back.
Top-up pension. Claiming tax relief on pension contributions gives you free money from the government, Suter said. “Basic-rate taxpayers receive 20% tax relief, while higher and additional rate taxpayers can reclaim an extra 20% or 25% through self-assessment.
“This means that for a higher-rate taxpayer, every £1 in their pension only costs 60p.”
Use ISAs. Every adult can save up to £20,000 into an ISA and pay no tax on capital gains, dividend and interest. “If you don’t use it, you lose it,” Suter said.
There are rumours that Reeves may , giving savers another incentive.
Younger savers can claim a government bonus of up to £1,000 by using their £4,000 Lifetime ISA allowance.
Protect savings from tax. Under the Personal Savings Allowance (PSA) basic-rate taxpayers can earn up to £1,000 in savings interest before paying tax, while higher-rate taxpayers can earn £500.
Yet 2.1 million still pay tax on their savings interest this year, Suter said. “Couples could shift savings between partners if one sits in a lower tax band or has unused ISA or PSA.”
Save on capital gains tax. Those with capital gains should consider banking some of them before April 5 to use the £3,000 annual exempt amount, Suter said. “A ‘Bed & ISA’ strategy lets investors sell investments, transfer the proceeds into an ISA, and repurchase them to keep future gains tax-free.”
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Reap dividends. All stock dividends above £500 a year are subject to either basic-rate tax at 8.75%, higher-rate tax at 33.75% or additional-rate tax of 39.35%, Suter said. “However, dividend income is tax free in an ISA.” Again, consider Bed & ISA.
Beat tax squeeze. Income tax and national insurance thresholds will remain frozen until at least 2028, pushing millions into higher tax brackets as incomes rise. Tax breaks such as the PSA shrink or disappear as you earn more.
However, a small pension contribution could reduce your taxable income below these thresholds and secure your tax breaks for another year, Suter said.
Use your partner. Couples who share finances can reduce tax bills by shifting savings or investments to the lower earner’s name, Suter said. “If one partner has unused ISA, pension, PSA or CGT exemption, consider moving assets around.”
Help the children. Parents and grandparents can save up to £9,000 per child in a Junior ISA, but there’s another option. They can also save up to £2,880 a year into a Junior Self-Invested Personal Pension, or SIPP.
Tax relief will boost that by £720 to £3,600, Suter said. “The child cannot access the money until at least age 57, and possibly later, but it provides a head start on retirement savings.”
Make tax-free gifts. Inheritance tax (IHT) bills are rising but there are simple ways to cut your estate’s liability, Suter said.
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Individuals can gift up to £3,000 per year free of IHT, and couples can combine allowances for £6,000 tax-free annually.
Parents can also give £5,000 to a child who’s getting married that tax year, while grandparents can give £2,500 to a grandchild. For anyone else, you can give £1,000 tax-free. Small gifts of up to £250 per person a year are also exempt.
The most generous exemption is for gifts made from surplus regular income, which can be unlimited if they don’t reduce your standard of living.
Automate your investing. Spreading investments throughout the year can smooth market volatility and reduce the risk of buying at the wrong time, Suter said. “Investment platforms typically allow automatic monthly investments from just £25, making it easy to start small.”
Time is shorter than you think, Suter said. “A little planning now could make a significant difference to your tax bill and financial future.”