Personal tax planning in 2025: What opportunities remain under Labour’s policies?

The UK’s tax framework has significantly changed following the Labour Government’s 2024 Autumn Budget. These adjustments have implications for personal tax planning, making it essential to understand the new policies to maintain tax efficiency.

This article examines the current tax landscape and identifies strategies to optimise personal tax planning under the latest regulations.

Personal tax planning – key changes from the 2024 Autumn Budget

The 2024 Autumn Budget introduced several notable tax changes:

• Capital gains tax (CGT) rate increase: The main rates of CGT have risen from 10% and 20% to 18% and 24%, respectively, effective from 30 October 2024. For Business Asset Disposal Relief and Investors’ Relief, the rate will increase 14% for disposals made on or after 6 April 2025 and 18% from 6 April 2026.
• Inheritance tax (IHT) threshold freeze: The IHT nil-rate band and residence nil-rate band are fixed at current levels until 5 April 2030, extending the previous freeze by two years.
• Employer national insurance contributions (NICs) Increase: The rate for employer NICs will rise from 13.8% to 15% starting April 2025. Additionally, the threshold at which employers begin paying NICs on employees’ salaries will decrease from £9,100 to £5,000 per year.
• National minimum wage increase: Effective April 2025, the minimum wage for individuals aged 21 and over will increase from £11.44 to £12.21 per hour.

Personal Tax planning – Income tax planning strategies

With the freezing of income tax thresholds until 2028, more individuals may be in higher tax brackets due to wage inflation. To mitigate this effect:

• Salary sacrifice schemes: Contributing to pension schemes through salary sacrifice can reduce taxable income, potentially keeping individuals within lower tax brackets. The annual pension allowance remains at £60,000, providing substantial scope for tax-efficient savings.
• Income splitting: Transferring income-generating assets to a spouse or civil partner in a lower tax bracket can reduce the overall tax burden. This strategy is particularly effective for investment income and dividends.

CGT considerations

The increase in CGT rates necessitates careful planning:

• Utilise annual exemptions: The annual CGT exemption remains at £3,000. Strategically timing asset disposals to utilise this exemption each tax year can minimise CGT liabilities.
• Bed and ISA strategy: Selling and repurchasing investments within an Individual Savings Account (ISA) can shelter future gains from CGT. The annual ISA allowance is £20,000, offering a tax-efficient investment vehicle.

Inheritance tax planning

With IHT thresholds frozen until 2030, proactive planning is essential:

• Lifetime gifting: Utilising annual gift exemptions (£3,000 per individual) and making regular gifts out of surplus income can reduce the value of an estate subject to IHT.
• Trusts: Establishing trusts can help manage the distribution of assets and potentially mitigate IHT liabilities, though professional advice is crucial due to their complexity.

National minimum wage implications

The rise in the national minimum wage affects both employers and employees:

• Budgeting for increased wage costs: Employers should plan for higher wage expenses and consider strategies to maintain profitability, such as improving operational efficiencies.
• Impact on personal allowance: Employees receiving the increased minimum wage may earn above the personal allowance threshold, leading to income tax liabilities.

Personal tax planning and adapting to the new tax environment

The 2024 Autumn Budget introduces significant changes that require careful consideration in personal tax planning. By understanding these changes and implementing appropriate strategies, individuals can maintain tax efficiency.

At RPG Crouch Chapman, we offer tailored advice to navigate these developments and optimise your tax position. Our team is ready to assist you in adapting your financial plans to the current tax landscape.  Contact us if you would like to speak to a member of our team or seek assistance with future tax planning.