As we approach the year end for Tax (6th of April to 5th of April), HMRC are on track to collect nearly £1 trillion in 2024-25. This is the heaviest tax burden since the end of the second world war. Now, more than ever is the perfect time for savvy investors to optimise your personal finances, reduce your bills, and pay less tax to be better equipped to meet your financial goals. Use these smart ways to lower your taxes going into the next year.
1. Shelter Your Investments in an ISAs and SIPPs
Arguably, the number one most important decision for sheltering your investments in the UK is by utilising a tax shelter such as an ISA or SIPP. As of 2025, below are the income bracket tax rates:
Income tax bands are different depending on if you live in Scotland vs England.
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
Why Sheltering an Investment matters:
- ISAs: Protect yourself up to £20k/year from Capital Gains Tax (CGT) and dividend taxes.
- SIPPs: Grow pensions tax-free (though taxed on withdrawal).
Key 2025 Changes:
- Capital Gains Allowance: Cut down to £3,000 (was £12,300 in 2022).
- Dividend Allowance: Reduced down to £500 (from £2,300 in 2022).
Example:
- Without an ISA: £10k gains + £2k dividends = £2,186 tax bill for higher earners.
- With ISA/SIPP: £0 tax on growth.
Action Steps:
- Open an ISA: Use platforms like Vanguard, Hargreaves Lansdown, or my own preferred platform Trading 212.
- Prioritise SIPPs for long-term growth: Contributions get 20-45% tax relief.
- Rebalance annually: Move taxable investments into ISA/SIPP wrappers. So if for instance you have a capital gain on your investments of up to £3,000, try to sell and move those investments into an ISA tax wrapper before the reset each tax year.
Key Links:
Best SIPPs 2025 (MoneySavingExpert)
2. Maximise Pension Tax Relief
Pension contributions are one aspect of accumulating wealth capital to last you towards retirement by slashing your biggest tax burden (your income tax).
How It Works:
- Basic-rate taxpayers: £800 contribution → £1,000 in pension after the HMRC 20% relief.
- Higher-rate taxpayers: Claim an extra 20% via tax returns (total 40% relief).
Example:
- A £300/month pension contribution could grow to £214k in 25 years, with £86k from tax relief alone (5% returns).
Pro Tips:
- Salary sacrifice: Redirect pre-tax income to pensions (saves NI contributions).
- Carry forward rules: Use unused allowances from the past 3 tax years.
Key Links:
3. Dodge the 62% Tax Trap (Earners Over £100k)
For higher rate tax payers, there are options for reducing your tax further.
The Problem:
- For every £2 earned over £100k, you lose £1 of your £12,570 tax-free allowance.
- A £10k pay rise at £100k → only £3,800 take-home after tax.
Solution:
- Pension contributions: Redirect £10k pre-tax → costs you £6k (40% taxpayer), saves £4k tax.
- Example: A £100k earner contributing £40k/year reduces taxable income to £60k, reclaiming full personal allowance.
Action Steps:
- Use HMRC’s tax calculator to model contributions.
- Consult an advisor via Unbiased for personalised planning.
4. Claim Missed Pension Tax Rebates
For higher rate taxpayers, you may be owed a tax rebate on your pension contributions. This is because, although you’re entitled to a 40% tax relief, most pensions only automatically pay 20%. This adds up to a lot of wasted unclaimed pension each year.
Find more about this on the government website.
The Issue:
- Higher-rate taxpayers waste £1.3bn/year on unclaimed relief.
- Many SIPPs only auto-add 20% relief; the rest must be claimed manually.
How to Claim:
- Check pension type: “Relief at source” schemes (e.g., SIPPs) require manual claims.
- File a Self-Assessment Tax Return: Claim via HMRC’s portal.
- Write to HMRC: Claim a tax rebate through your tax return OR write to HMRC with details of your pension contributions.
Example:
- £10k SIPP contribution → claim £2k back as a higher-rate taxpayer.
5. Use “Bed & ISA” to Dodge CGT
A simple method to divert investments for tax efficiency. Use the capital gains allowance to reverse bad decisions to invest outside of an ISA by selling and diverting investments to a tax efficient ISA.
How It Works:
- Sell shares (using your £3k Capital Gains Allowance).
- Re-buy those (or re-evaluate and buy better investments) immediately inside an ISA.
Example:
- Sell £50k of shares with £5k gains → use £3k allowance, pay 20% tax on £2k (£400).
- Rebuy in ISA → future gains shielded.
Costs:
- Trading fees (e.g., £11.95/trade with AJ Bell).
- Market timing risk.
Action Steps:
- Use platforms with free ISA transfers (e.g., Interactive Investor).
- Act before April 5 to use annual allowance.
6. Max Out Annual Allowances
As it currently stands, there is a 20k allowance you can maximise every year but who knows about the future. You also have pension contributions.
2025 Limits:
- Pension: £60k/year (includes employer contributions).
- ISA: £20k/year.
Combined Strategy:
- Redirect bonuses/windfalls: £60k into pension + £20k into ISA = £80k/year tax-free.
Pro Tips:
- Emergency fund first: Keep 3-6 months’ expenses in easy-access savings.
- NS&I Premium Bonds: Tax-free winnings (max £50k).
Key Links:
7. Avoid the Money Purchase Annual Allowance (MPAA)
The Risk:
- Withdrawing taxable pension income slashes annual allowance to £10k.
How to Dodge It:
- Use UFPLS withdrawals (25% tax-free) instead of flexi-access drawdown.
- Consult a chartered advisor before accessing pensions.
Final Checklist Before April 5, 2025
✅ Use CGT allowance: Sell/reinvest £3k gains.
✅ Top up ISA/SIPP: Max out £20k/£60k limits.
✅ Claim higher-rate relief: File Self-Assessment or write to HMRC.
✅ Rebalance portfolio: Shift taxable assets into ISAs.
✅ Check NS&I Premium Bonds: Max out £50k for tax-free savings.
Need Help?
- Find a tax advisor via Chartered Institute of Taxation.
- Use MoneyHelper for free guidance.
Why This Works: These smart ways to lower your tax strategies are used by UK financial planners daily. For example, a £100k earner contributing £40k to a pension saves £16k in tax while building retirement wealth.
Always verify rules with HMRC or a tax professional—this article reflects 2025 guidelines as of July 2024.
For more articles related to tax, check out the rest here.
Disclaimer: This is not financial advice, seek a professional when making important investment decisions
