Tax has dominated most of 2024, with endless speculation about what would change in the Autumn Budget, followed by a number of unwelcome announcements – and then the prolonged fall-out as people weighed up what it would mean for them.
Tax doesn’t seem to be taking a back seat in 2025 either, so there’s a decent chance you’ll end up paying more tax in the coming year.
This article isn’t advice. If you're not sure if a course of action is right for you, ask for financial advice. Remember, all investments and any income from them can rise and fall in value, so you could get back less than you invest.
ISA, pension and tax rules can change, and benefits depend on your circumstances. Tax rates and bands are different for Scottish taxpayers. Remember, you can't usually access money in a pension until you're 55 (rising to 57 in 2028).
What you need to know about tax in 2025
Income tax and National Insurance
Income tax and National Insurance thresholds will be frozen until 2028, and between now and then every pay rise will mean you pay more tax and creep ever closer to crossing a tax threshold.
At that point, it’s not just more income tax you have to worry about, but potentially higher rates on everything from dividend tax to capital gains tax, and a shrinking personal savings allowance.
Capital gains tax
The day after the Budget we were clobbered by the rise in the capital gains tax (CGT) rate for investors – from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher and additional-rate taxpayers, but this is the first full year at a higher rate.
Stamp duty
Since the ill-fated mini-Budget in September 2022, the stamp duty threshold has been higher – up from £125,000 to £250,000.
The threshold for first-time buyers was also increased from £300,000 to £425,000 – and the maximum value of property to benefit from the first-time buyer threshold was raised to £625,000 (up from £500,000).
However, this temporary stamp duty holiday ends on 31 March 2025.
This doesn’t just mean more tax after the change. It could also prompt a rush in the first few months of the year, ahead of the change, which could push prices up so buyers don’t save what they’d hoped.
Inheritance tax
The inheritance tax (IHT) nil rate band will remain at £325,000 and the residence nil rate band at £175,000 in the next tax year.
In fact, thanks to the Budget, it will stay at this level until 2030.
Meanwhile, the IHT annual tax gift allowance is spending its fourth decade at £3,000. It means more estates will have more IHT to pay.
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5 ways to cut your tax bill in 2025
ISAs
Each tax year you get an ISA allowance. This tax year the government is offering the chance to squirrel away up to £20,000 – completely free of tax.
Investing through a Stocks and Shares ISA means you won’t have to pay capital gains or dividend tax, while saving through a Cash ISA will shelter you from income tax.
If you’re saving to buy a first property, are aged between 18-39, and have at least a year until you expect to buy, you could consider putting up to £4,000 a year into a Lifetime ISA.
That’s because in addition to tax-free growth, you get a 25% bonus on what you put in, up to a maximum of £1,000.
Just remember, any withdrawals that aren’t a qualifying first home purchase or after age 60, are usually subject to a 25% penalty, meaning you could get back less than you put in.
Don’t forget Junior ISAs (JISAs) too. In the current tax year, you can save or invest £9,000 in a JISA for any qualifying child, and all interest, dividends or capital gains are tax free.
Pensions
You can pay up to £60,000 into a pension, like the Self-Invested Personal Pension (SIPP), in the current tax year. You can get tax relief at your highest marginal rate when you pay into a pension, and the first 25% taken from the pension is usually tax-free.
Even if you’re a non-taxpayer, you can get tax relief on the first £3,600 a year.
It means you can contribute tax-efficiently to a pension on behalf of a child or a non-working partner. If you can afford to put more money away for the long term, it’s a great way to cut your tax bill – as well as securing the income you need in retirement.
Salary sacrifice
In some cases, the government will let you give up a portion of your salary, and spend it on certain things free of tax. This can include pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
Where employers offer to put their National Insurance saving into the scheme, the hike in employers’ National Insurance will make this an even more attractive option.
It won’t boost your take-home pay, but will cut your tax bill, and make your money go further.
Spouse exemptions
If you’ve already used your ISA allowance and have assets that produce an income – like shares paying dividends or a property – married people should think about how they hold them.
They can be passed between spouses (or civil partners) without triggering a tax bill. They can therefore be shared between a couple, so that both can take advantage of their ISA allowances, and both take an income up to the threshold. The balance can be held by the spouse paying the lower rate of tax, to help reduce how much tax you have to pay.
Marriage allowance
Married couples and civil partners can transfer some of their income tax personal allowance to their spouse.
If you earn less than the £12,570 personal allowance and your spouse is a basic-rate taxpayer, you can gift £1,260 of your allowance. This could save them 20% tax on that £1,260 – a potential saving of up to £252.
Better still, you can backdate this saving four tax years, so they could keep even more in their pocket.
Our advisers can adjust your financial plan post-Budget. Understand how inheritance tax on pensions and risings capital gains tax could impact you.