Freezing of Personal Allowances

In the last Budget, Personal tax allowances were frozen until 2028, together with a reduction in the threshold at which taxpayers pay the additional rate from income of £150,000 to £125,140. 

The fact that these thresholds are being frozen until 2028 means that as inflationary pressures see wages rise, more and more people will find themselves paying over a greater percentage of their income as income tax each year – the very definition of a stealth tax, affecting individuals at all levels. 

If you would like to discuss the below planning ideas, please contact our private client team.

Planning Tips for reducing your Tax Rate

Boost your pension contributions to potentially expand the thresholds by the grossed-up sum of your personal contributions. If you find yourself nearing one of these thresholds, increasing your contributions could potentially reposition you within a more favourable tax bracket. It’s important to note that there are restrictions on the maximum contribution amount, contingent upon your income. 

Salary Sacrifice involves tax-free benefits that your employer can provide, such as pension contributions, which effectively lower your taxable income while simultaneously decreasing both your and your employer’s National Insurance Contribution (NIC) obligations. Additionally, tax-free benefits like employer-supplied mobile phones or payment for specific professional subscriptions can further decrease your income when facilitated through salary sacrifice.

If you are the proprietor of your own business, it’s worth contemplating the timing of dividend payments. Depending on your specific situation, spreading these dividends out over an extended period, or consolidating them in certain years could help you maintain your personal tax allowance and potentially result in tax savings over several years.

Tax free investments such as ISAs – the interest they generate won’t be factored into your total income, unlike non-ISA income, even if it falls within the annual allowances for dividends or interest.  

When you contribute to charitable causes through Gift Aid, the tax rate thresholds rise just as they do for pensions.