How to Save on Personal Tax in the UK (2025): A Comprehensive Guide

Tax season in the UK can bring its fair share of stress, but with proper planning, you can reduce your tax liabilities legally and effectively. Whether it's rising living costs, frozen thresholds, or shrinking allowances, 2025 is shaping up to be a critical year for smart tax planning. Below, we've expanded on 10 actionable tips to help you save on personal tax in the UK. These strategies not only guide you through optimising opportunities but also simplify the process for better financial outcomes.

1. Maximise Your ISA Allowance

The Basics:
An Individual Savings Account (ISA) is a tax-friendly way to save or invest up to £20,000 annually. Gains or interest you earn in an ISA remain free of Income Tax and Capital Gains Tax (CGT).

Why It’s Beneficial:
By using your full ISA allowance, you shield your savings and investments from taxes and make your money work harder. It’s a straightforward way to grow your wealth without losing a chunk of it to HMRC.

How to Implement:

• Spread Your Savings
  Combine Cash ISAs for risk-free returns with Stocks & Shares ISAs for long-term growth.
• Consider Lifetime ISAs
  Saving for retirement or your first home? Lifetime ISAs give you a 25% government bonus on contributions—meaning you can gain as much as £1,000 annually if you deposit the maximum £4,000.

Example: If you save £10,000 in a Stocks & Shares ISA and earn 5%, your gains of £500 will remain tax-free, unlike traditional investments where CGT might apply.

For more information, check out the official guide to ISAs from GOV.UK.

2. Make the Most of Pension Contributions

The Essentials:
Contributing to a pension scheme not only secures your future but also delivers tax relief now. This relief equals the rate at which you’re taxed (e.g., 20%, 40%, or 45%).

Long-Term Advantages:
Pension contributions reduce your taxable income, helping you stay within lower tax bands and avoiding higher tax rates.

Action Plan:

• Use the £60,000 annual allowance, or carry forward unused allowances from the last three years to boost contributions.
• If your goal is to save for retirement while reducing taxes, employer pensions often match your contributions, effectively doubling your savings.

Real-Life Scenario: If you’re earning close to the higher tax threshold (£50,270), contributing £5,000 to a pension could pull you back into the 20% tax bracket, saving hundreds in tax while growing your retirement fund.

Learn more about pension contributions on the official HMRC pension tax relief page.

3. Claim Marriage Allowance

Understanding the Allowance:
Marriage Allowance permits a lower-earning partner to transfer up to £1,260 of their unused personal allowance to a higher-earning partner, lowering the household’s tax bill.

Who Benefits:
Couples where one spouse earns under the £12,570 personal allowance can save up to £252 per year.

How to Apply:

• Submit a free application online through HMRC’s website.
• Ensure eligibility by checking that one partner earns less than £12,570 and the other pays the basic tax rate.

Example: If Sarah earns £10,000 and transfers her unused allowance to her husband Mark, who earns £30,000, they’ll save £252. It’s a quick win for couples looking to cut costs.

You can apply easily through the Marriage Allowance service on GOV.UK.

4. Review and Update Your Tax Code

Why It’s Important:
Your tax code dictates how much tax is deducted from your income. An incorrect code could mean you’re overpaying.

Steps to Avoid Overpayment:

• Check your tax code annually on your payslip or via HMRC’s online personal tax account.
• Report any life changes affecting your income, such as switching jobs, receiving benefits, or reducing working hours.

Example: If your tax code suggests you’re paying for work benefits you no longer receive, like a company car, correcting it could put hundreds of pounds back in your paycheck.

5. Use Rental Property Income Allowances

For Landlords:
If you’re earning rental income, you can lower your tax bill by either claiming the £1,000 property allowance or deducting specific expenses.

Reducing Taxable Profits:
Choose the approach that saves more:

• Flat £1,000 deduction for small-scale landlords.
• Alternatively, deduct actual expenses like mortgage interest (where applicable), maintenance, or letting agent fees.

Expert Tip:
Keeping detailed receipts and accurate records ensures you claim exactly what you’re entitled to.

Example: If you spend £1,200 on property upkeep, you’ll save more by deducting these actual costs than claiming the £1,000 allowance.

More details about rental income taxation can be found on the HMRC rental income page.

6. Benefit From Capital Gains Tax (CGT) Exemptions

Capital Gains Basics:
Starting in 2025, the annual tax-free CGT allowance drops to £6,000. This makes strategic asset management crucial to avoid unnecessary taxes.

How to Save:

• Spread your asset sales across multiple years to avoid crossing the allowance threshold.
• Transfer assets to your spouse tax-free to combine exemptions and double your savings.

Scenario: If you sell shares worth £8,000, only £2,000 is taxable after applying the £6,000 CGT exemption. However, transferring half to your spouse means both can use the allowance, erasing the tax liability altogether.

For further guidance, visit HMRC’s Capital Gains Tax page.

7. Maximise Gift Aid on Charitable Donations

How Gift Aid Works:
Charities receive an extra 25p for every £1 you donate. Higher-rate taxpayers gain by claiming additional tax relief via their tax return.

Boosting Benefits:

• Always tick the Gift Aid box when donating.
• Track your donations to declare them in your self-assessment tax return.

Example: If you donate £500 and are a higher-rate taxpayer, you’ll receive £125 in tax relief, making a meaningful contribution to both charity and your finances.

Explore how Gift Aid works on the GOV.UK Gift Aid page.

8. Explore Tax-Efficient Investments

What It Entails:
Schemes like the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide tax advantages while supporting innovation.

Savings Opportunities:

• Up to 50% income tax relief on SEIS investments.
• Exemption from CGT on gains from EIS investments held for three years.

Caution:
While potential rewards are high, these investments carry risks. Consult a financial advisor before committing.

Read more about EIS and SEIS investment opportunities.

9. Plan for Inheritance Tax (IHT)

Key Facts:
Inheritance Tax applies at 40% on estates exceeding the £325,000 nil-rate band. A proactive strategy can significantly reduce this figure.

Tax-Saving Moves:

• Gift £3,000 per year tax-free to loved ones.
• Consider setting up trusts to transfer wealth efficiently.

Long-Term Impact:
Proper IHT planning ensures your assets support your family, not HMRC.

Access more IHT advice on the official GOV.UK inheritance tax page.

10. Stay Ahead of Inflation

Managing Costs:
Inflation erodes the value of money, meaning allowances may not stretch as far. Adjust your strategy to make the most of tax-efficient options.

Practical Tips:

• Review ISAs, pensions, and savings to maximise returns.
• Plan long-term investments with inflation resilience in mind.

Example: A £5,000 cash savings strategy in an ISA will outperform the same amount in an untaxed account eroded by inflation and interest taxation.

For more on adjusting to inflation, visit financial planning guidance on MoneyHelper.

Start today—small changes can lead to big savings!