Income Tax planning is important when looking at reducing your taxable income, especially when your income falls just above one of the thresholds. There are different ways and strategies that you can use for your Income tax planning such as gift aid, pension contribution, moving amounts from year to year and encashment of life insurance bonds.
Income Tax Rates
Income tax rates and thresholds are to remain unchanged for 2025/26. The Personal Allowance, which income is not taxed, is £12,570. The higher rate threshold at which 40% tax kicks in is £50,270 and top rate tax (45%) begins when income exceeds £125,140. The Personal Allowance of £12,570 progressively withdrawn for individuals with income of more than £100,000 leading to a marginal rate of 60% on income between £100,000 and £125,140.
Strategies and Actions To Take
You can consider planning and taking action to reduce taxable income and avoid going into a higher threshold. For example, you can move income from year to year such as bonuses and dividends from your own company, as well as encashments of life assurance bonds.
Also, it’s possible to move income from spouse to spouse via an outright gift of investment. You can also put savings and investments into joint names to share the income as well as employ the spouse or partner in the other person’s business or make them a partner in the business.
Gift Aids gives the possibility of tax relief when donating to charity. Higher rate taxpayers can claim extra relief of 20% of the gross value of the gift, and for top rate taxpayers the relief is 25%. There is no cap on the amount that qualifies for Gift Aid provided the donor has paid sufficient tax to cover the charity’s reclaim from HMRC. Also, donating assets to charity while alive can also allow income tax relief.
If you need any help or advice on your income tax planning, please contact us.
