Personal tax planning is about arranging your affairs legitimately to minimise the amount of tax you pay — within the letter and spirit of the law. With the right planning, the difference can be substantial.
The Personal Allowance Trap
Everyone gets a personal allowance of £12,570 (2024/25). But above £100,000, this allowance tapers away at £1 for every £2 earned above £100,000. The result is an effective marginal tax rate of 60% on income between £100,000 and £125,140.
If your income is in this range, pension contributions or other reliefs that bring your adjusted net income below £100,000 can be extremely valuable.
Salary vs Dividends
Owner-managers of limited companies typically take a blend of salary and dividends. The optimal mix depends on:
- •The company's other employees (Employment Allowance eligibility)
- •Your other income sources
- •Your marginal tax rate
- •Pension considerations
The dividend allowance has reduced from £5,000 to £500 over recent years, making this calculation increasingly important.
Pension Planning
Pension contributions are one of the most tax-efficient tools available:
- •Contributions receive income tax relief at your marginal rate
- •Growth within a pension is free of income tax and CGT
- •Employer contributions through a company are deductible for corporation tax
The annual allowance (currently £60,000 for most people) limits how much can be contributed. Carry-forward rules allow you to use unused allowance from the three prior years.
ISAs
ISA contributions (£20,000 per year for adults) grow free of income tax and CGT. While contributions aren't deductible, the long-term compound benefit is significant.
Capital Gains Tax Planning
Key CGT strategies include:
- •Using your annual CGT allowance (£3,000 in 2024/25) each year — it can't be carried forward
- •Transferring assets to a spouse or civil partner to use their allowance
- •Timing disposals across tax years to spread gains
- •Business Asset Disposal Relief (BADR — formerly Entrepreneurs' Relief) for qualifying business disposals, taxed at 10%
Inheritance Tax
For those with estates above the nil-rate band (£325,000, plus the residence nil-rate band of £175,000), IHT planning is increasingly important. Strategies include gifts (using the annual exempt amount of £3,000), business property relief, and pension planning (pensions currently remain outside your estate for IHT purposes, though this may change from 2027).
We Look at the Full Picture
Personal tax is not just about your Self Assessment return — it's about looking at your total financial position and finding the best overall strategy. We review this with you annually, well ahead of each year-end.