UK Tax Allowances Overview 2024/25
Understanding and maximizing UK tax allowances is crucial for family wealth building. The tax system provides various opportunities to reduce your tax liability legally and efficiently. Here's your complete guide to the key allowances available in the 2024/25 tax year.
Key Tax Allowances 2024/25
| Allowance Type | 2024/25 Limit | Tax Benefit |
|---|---|---|
| ISA Annual Allowance | £20,000 | Tax-free growth & withdrawals |
| Pension Annual Allowance | £60,000 | Income tax relief up to 45% |
| Capital Gains Tax Allowance | £6,000 | Tax-free capital gains |
| Personal Allowance | £12,570 | Tax-free income |
| Dividend Allowance | £500 | Tax-free dividend income |
Use It or Lose It
Most tax allowances reset each tax year (6 April). If you don't use them, you lose them forever. Planning ahead is essential to maximize these opportunities.
ISA Strategies for Families
Individual Savings Accounts (ISAs) are one of the most valuable tax-efficient savings vehicles available to UK families.
Types of ISAs
- Cash ISAs: Tax-free interest on savings
- Stocks & Shares ISAs: Tax-free investment growth and income
- Innovative Finance ISAs: Tax-free returns from peer-to-peer lending
- Lifetime ISAs: 25% government bonus for first-time buyers and retirement
Family ISA Strategies
Couple's ISA Planning
A married couple can save £40,000 annually (£20,000 each) tax-free. Over 20 years with 5% growth, this could accumulate to over £1.3 million tax-free!
Junior ISAs for Children
- Annual allowance: £9,000 for 2024/25
- Available for children under 18
- Child gains control at age 16, access at 18
- Perfect for building education or first home deposits
Maximizing Pension Tax Relief
Pension contributions offer some of the most generous tax relief available, making them a powerful wealth-building tool.
How Pension Tax Relief Works
- Basic rate (20%): £1,000 contribution costs £800 after tax relief
- Higher rate (40%): £1,000 contribution costs £600 after tax relief
- Additional rate (45%): £1,000 contribution costs £550 after tax relief
Example: Higher Rate Taxpayer
Scenario: £10,000 pension contribution
- Net cost after tax relief: £6,000
- Immediate tax saving: £4,000
- Effective return: 67% instant gain
Advanced Pension Strategies
- Carry forward: Use unused allowances from previous 3 years
- Salary sacrifice: Save National Insurance contributions too
- Spousal contributions: Non-working spouses can contribute £3,600 annually
Capital Gains Tax Strategies
With the CGT allowance reduced to £6,000 in 2024/25, careful planning is more important than ever.
CGT Rates 2024/25
- Basic rate taxpayers: 10% (18% on residential property)
- Higher/additional rate taxpayers: 20% (24% on residential property)
CGT Planning Strategies
- Annual exemption timing: Realize gains across tax years
- Loss harvesting: Offset gains with capital losses
- Spousal transfers: Use both partners' allowances
- ISA sheltering: Hold growth investments in ISAs
30-Day Rule
Be aware of the "bed and breakfast" rule - you can't buy back the same shares within 30 days of selling for a loss, or the loss won't be valid for tax purposes.
Inheritance Tax Planning
With property values rising, more families are facing inheritance tax. Early planning can significantly reduce or eliminate this 40% tax.
IHT Thresholds 2024/25
- Nil rate band: £325,000 per person
- Residence nil rate band: £175,000 (when leaving home to children)
- Combined allowance: Up to £1 million for married couples
IHT Planning Strategies
- Annual exemptions: £3,000 per year (plus £3,000 carried forward)
- Gifts out of income: Regular gifts from surplus income
- 7-year rule: Potentially exempt transfers escape IHT after 7 years
- Business Property Relief: 100% relief on qualifying business assets
- Charitable giving: Reduces IHT rate from 40% to 36%
Family Gift Strategy
A couple can gift £6,000 annually without affecting their IHT allowances. Additional gifts may qualify for relief if they survive 7 years or are made from surplus income.
Family Tax Strategies
Coordinating tax planning across family members can dramatically improve your overall tax efficiency.
Income Splitting Strategies
- Spousal transfers: Shift income to lower-rate taxpayer spouse
- Dividend planning: Use both spouses' dividend allowances
- Capital gains timing: Spread disposals across both spouses
Children's Tax Planning
- Junior ISAs: £9,000 annual allowance per child
- Child trust funds: Continue contributions if held
- Bare trusts: For larger gifts to children
- Pension contributions: Children with earnings can contribute
Family of Four Tax Efficiency
Annual tax-free savings potential:
- Two adult ISAs: £40,000
- Two Junior ISAs: £18,000
- Pension contributions: £120,000+ (with tax relief)
- Total potential: £178,000+ annually
Your Family Tax Action Plan
Implementing these strategies requires careful planning and timing. Here's your step-by-step action plan:
Before 5 April (Tax Year End)
- Use ISA allowances: Ensure you and your spouse use full £20,000 allowances
- Realize capital gains: Use your £6,000 CGT allowances
- Make pension contributions: Maximize annual allowances
- Consider gifts: Use annual IHT exemptions
Annual Tax Planning Review
- Income projection: Estimate next year's income and tax position
- Allowance planning: Allocate allowances between family members
- Investment review: Optimize portfolio for tax efficiency
- Estate planning: Review IHT position and gifting strategies
Professional Tax Planning
Tax legislation is complex and constantly changing. Our expert advisers can create a personalized tax strategy for your family's unique situation.
Book Your Tax Planning Review