2025 is set to be a year full of challenges and opportunities alike for UK savers. With new tax considerations and changes to investment strategies ahead, it’s the perfect time to take stock of your savings and minimise your tax bill.
Although the UK tax system can be complicated at the best of times, there are a number of measures to take to effectively lower your tax bill. These measures can complement your financial goals and help to grow your wealth even at a time when you may be liable to pay more tax based on your income.
One of the biggest challenges of the new year stems from the implications of the freeze on income tax thresholds until April 2028. This means that as your wages grow, you’re more likely to incur a higher rate of tax despite inflation causing your living expenses to fall in line with your wages.
While the year ahead could bring new tax obligations, there are several measures you can take to minimise your tax bill. Let’s take a deeper look at four effective strategies to help ease your tax pressures in 2025:
- Use ISAs to Offset Higher Capital Gains Tax Rates
To save effectively in 2025, it’s important to keep on top of recent tax changes in Labour’s October Budget.
Crucially, the government used its Autumn Budget to change the Capital Gains Tax (CGT) in a way that can make you liable to pay more tax on your profits in 2025.
As a result, the CGT allowance was increased from 10% to 18% at the lower rate and from 20% to 24% at the higher rate.
While this can be frustrating for investors who have made strong profits on their investments in recent months, this particular tax burden can be avoided with the strategic use of an ISA.
ISAs, or Individual Savings Accounts, offer a £20,000 annual tax-free allowance each tax year, and this allows you to save more without having to incur harsh CGT bills in the process.
If you’re looking to make the most from your investments in 2025, opening a Stocks and Shares ISA and using its allowance in full is the best way to make tax-free profits.
- Always Remember Your Dividend Allowance
Tax-free allowances extend way beyond ISAs, and to minimise your tax bill most effectively in 2025, you should look to utilise your dividend allowance to its full potential.
If you own shares in a company that pays dividends, you can expect payouts on a quarterly basis, depending on their respective performance.
Although dividends received are taxable, you will receive a healthy dividend tax allowance of £500 for the 2024/2025 tax year, meaning that your payouts can stretch further as part of your overall earnings for the year.
All investors can enjoy the same dividend allowance no matter what other income they receive over the course of the year. The allowance can’t be carried over to the following tax year, so keep it in mind when strategising your investments for 2025.
- Considering Sharing Assets With Your Partner
The recent changes to CGT rates mean that it could be beneficial to transfer ownership of your investments to your partner to manage as part of their Capital Gains Tax allowance.
This strategy helps you to spread your CGT allowance across both yourself and your spouse or civil partner to avoid incurring the 18% and 24% tax rates on the profits you make.
If you’re married or are in a civil partnership, you can transfer ownership of your investments without having to pay CGT, and this means that you can utilise your own Capital Gains allowance to manage the assets.
Furthermore, if your partner pays a lower tax rate to you or vice versa, you can benefit from a far lower tax rate on your profits by using this strategy. You can also adopt this approach to spread your dividend allowance.
- Seek Out Tax-Efficient Investments
One of the most effective ways to minimise your tax bill if you’re a prolific investor is to diversify your portfolio with tax-efficient investments. Property-backed P2P lending with Innovative Finance ISAs (IFISAs), for instance, can help deliver fresh benefits for anyone seeking to build their wealth with fewer tax liabilities.
IFISAs provide full tax exemptions for your income, asset-backed security, and a traditionally higher rate of return for investors, and serve as a strong example of how you can stretch your savings further without losing a portion of your earnings to CGT.
Making The Most of Tax-Free Savings
While the tax outlook for 2025 can be convoluted, the UK offers a great range of tax exemptions for you to stretch your profitability further throughout the year.
By taking advantage of tax allowances and the freedom to share assets with your partner, it’s possible to make your savings far more effective over the year ahead. With the right measures and a growth-focused strategy, 2025 can be a transformative year for your savings.
