As the new financial year approaches, Charles Stanley Direct’s personal finance commentator Aaron Gibbs has shared his best advice for keeping your tax exposure as low as it should be
A wealth management expert has shared his top five tips for cutting the amount of tax you pay in 2025.
This year is shaping up to be a financially squeezed one, with £40billion of tax rises from Rachel Reeves due to hit the pockets of millions of Brits in the coming months. The rises – which mostly target businesses and rich Brits – will take the UK’s tax burden to more than 39 percent of gross domestic product by 2029.
For those who like to be proactive, there is plenty that can be done to make sure you’re paying the right amount of tax this year and not a penny more. As the new financial year approaches, Charles Stanley Direct’s personal finance commentator Aaron Gibbs has shared his best advice for keeping your tax exposure as low as it should be.
1. Use your annual ISA allowance
One of the best and surest tax breaks on offer is the Individual Savings Account or ISA. The current ISA allowance is £20,000, £9,000 for Junior ISAs and £4,000 for the Lifetime ISA. These allowances will stay as they are until 2030. The reason why ISAs are great investment vehicles is that any growth or income you get from your investments won’t be hit by income tax or capital gains tax.
One way to make the most of this tax break is through a Stocks and Shares ISA, which allows you to put money in shares, bonds and other investment vehicles to generate a return. Charles Stanley Direct’s Stocks & Shares ISA is flexible, meaning you can access your money at any time, and also add to and withdraw from it throughout the year, so long as you don’t go over your annual allowance.
Aaron notes: “Investing is for the long term so you should aim to stay invested for at least five years. The earlier you start adding to your ISA allowance in the tax year, the more time your investments have to grow.”
2. Gifting to reduce an inheritance tax bill
In her budget, the Chancellor announced that inheritance tax (IHT) thresholds will be frozen until 2030, while inherited pensions will be liable to the tax for the first time from 2027. By planning ahead and gifting some of your wealth today, you could reduce the amount of IHT your loved ones have to pay in the future.
Gifting rules allow £3,000 to be given each year, free of inheritance tax. This can either be for one person, or split between many. If you don’t use your gifting allowance, you can carry it forward to the next tax year. IHT thresholds and rules are complex, so it’s well worth speaking to a wealth manager like Charles Stanley Direct’s so you’re sure you’re making the best decisions you can.
3. Bed & ISA/SIPP
In the budget Reeves made major cuts to dividend allowances and increased capital gains tax rates. One way to limit the impact of that is by making a significant shift from holding investments in general investment accounts, to ISAs or Self-Invested Personal Pensions (SIPPs.)
“The process involves selling investments in a general investment account, transferring the cash into an ISA or SIPP and then reinvesting back into the stock market. You can reinvest in the same stock (known as a Bed & ISA or Bed & SIPP), or a different stock of your choice,” Aaron said.
Charles Stanley Direct lets you manage your savings and investments in one place, with a single online log-in. It also offers competitive charges, access to over 12,500 UK and International Shares, Funds, ETFs and Investment Trusts and one of the few ‘Flexible’ ISAs available in the market.
Now, you can get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct.
4. Use your capital gains tax allowance
There are new rules in play for capital gains tax, which came into force immediately in the Autumn Budget.
Proceeds from some shares or funds, sold for a profit on or after 30 October 2024, will be subject to the new rates – 18% or 24%, depending on your tax bracket. Investors with assets outside of pensions and ISAs may want to consider their liabilities and find out how to reduce their capital gains tax burden.
“Use your CGT annual allowance (currently £3,000) to gradually realise gains in each tax year. You can do this by top slicing from investments that have performed well and perhaps reinvesting in other areas of your portfolio which haven’t done as well,” Aaron advised. There are other tips to reduce your CGT tax burden which Charles Stanley Direct can recommend.
5. Share assets with your spouse or civil partner
If you’re married or in a civil partnership, you can transfer ownership of your investments to your other half free of CGT. This means when they sell, they will be able to make the most of their own CGT allowance.
Aaron said: “Couples can benefit further from CGT rules if your partner pays tax at a lower rate, or vice versa. For example, if you’re a higher-rate taxpayer and you transfer assets to your partner who is a basic-rate taxpayer, any gains will be taxed at 18% rather than 24%. This would reduce your tax bill by £600 on a profit of £10,000.”
Readers should remember that all investment involves risk.