The tax breaks available to UK investors and savers have been on the decline for a number of years now.
The dividend allowance was slashed by 50% from £1,000 to £500 in the 2024/25 tax year. The capital gains tax (CGT) allowance was also halved to £3,000 from £6,000 for 2024/25, down from £12,300 in 2021/22.
In the Autumn Budget, Chancellor Rachel Reeves was the bearer of more bad news as she increased the CGT rate on shares from 10% to 18% for basic rate taxpayers and 18% to 24% to higher or additional rate taxpayers.
She also agreed to extend the inheritance tax (IHT) threshold freeze for another two years to 2030. This means more people will now likely pay IHT in the future.
But one of the biggest changes announced in the Budget was the intention that most pensions will fall into the IHT regime from April 2027.
At the moment, defined contribution pensions are usually passed on tax free if you die before the age of 75 – or withdrawals are taxed at the beneficiaries’ marginal rate of income tax if you die aged 75 or over – but in most cases pensions don’t attract IHT. This change will throw a spanner in the works of pension plans for many retirees as we will see many more people dragged into paying IHT because their pension pot is now counted as part of their estate.
We understand that changes to tax rules can be unnerving times for investors and savers, but there are ways to reduce the amount of tax you pay if you plan ahead.
This article contains five tax-savings tips for 2025 that could save you and your loved ones thousands. These tips are not personal advice and we are not tax experts.
Five tax-saving tips for 2025
1. Use your annual ISA allowance
Arguably the biggest tax break still on offer is the ISA (Individual Savings Account). The current ISA allowance is £20,000, £9,000 for Junior ISAs and £4,000 for the Lifetime ISA – which can form part of the £20,000 allowance. These limits will remain frozen at this level until 2030, confirmed by Reeves in the Autumn Budget.
The key benefit of an ISA is that any growth or income from your investments are sheltered from both income tax and CGT. At a time where taxes are rising, it’s important to take advantage of government incentives whilst they are still available.
A Stocks and Shares ISA is a type of investment account where you can invest in a variety of investments, such as shares and bonds to generate a return. Unlike cash, investments can fall in value so you could get back less than you invest. It's also possible to open a Cash ISA or Lifetime ISA.
Charles Stanley’s Stocks & Shares ISA is flexible so you can access your money at any time. You can add and withdraw your money through the year, providing you don’t go over your annual allowance. However, investing is for the long term so you should aim to stay invested for at least five years.
The earlier you start adding to your ISA allowance in the tax year, the more time your investments have to grow. So, start investing in your financial future today by opening an ISA account in minutes with Charles Stanley Direct.
2. Gifting to reduce an IHT bill
In light of the recent raft of changes to IHT, it’s essential to start making plans for the legacy you’d like to leave behind.
By planning ahead and gifting some of your wealth today, you can reduce the IHT bill your loved ones have to pay in the future.
Until 2030, the tax-free threshold for IHT is £325,000 (or £500,000 if the estate includes a family home which is passed on to children or grandchildren). There is no IHT to be paid if your entire estate is left to your spouse. They will also inherit the tax-free thresholds meaning the tax-free allowance on the estate can rise up to £1 million.
Inherited assets over the tax-free threshold are taxed at a rate of 40%, so it could be worth looking at how you can reduce the size of your estate if it’s valued above the tax-free threshold.
Gifting rules allow £3,000 to be gifted each year free of inheritance tax. This can be to one person, or split between as many people as you’d like. If you don’t use your gifting allowance, you can carry it forward to the next tax year.
Smaller gifts of £250 per person each year are allowed on top of this too, providing they aren't to the same people as the gift allowance. You can also make regular gifts from surplus income, as long as they do not compromise your standard of living.
For any gifts above this amount, the seven-year rule applies. This means you must survive for at least seven years until these gifts are deemed outside your estate and therefore free from any potential IHT. If you die during the seven-year period, IHT is payable on a reducing scale.
3. Bed & ISA/SIPP
With major cuts to dividend allowances and increase to CGT rates, it’s more important than ever to shelter your investments from tax by making a significant shift from holding investments in general investment accounts to ISAs or SIPPs.
The process involves selling investments in a general investment account, transferring the cash into an ISA or SIPP and then reinvesting back into the stock market. You can reinvest in the same stock (known as a Bed & ISA or Bed & SIPP), or a different stock of your choice.
Please note, selling investments in a general investment account could be subject to CGT and dealing charges may apply.
Why not consider transferring your investments under one roof? It’s easy to lose track of your pension pots and other types of investments accounts you’ve built up over the years.
Charles Stanley Direct allows you to take control of your financial future by being able to manage your savings and investments in one place, with a single online log-in. With competitive charges, access to over 12,500 UK & International Shares, Funds, ETFs and Investment Trusts and one of the few “Flexible” ISAs available in the market.
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct.
How to transfer and claim cashback
4. Use your capital gains tax (CGT) allowance
The recent changes to CGT rates announced in the Autumn Budget came into effect immediately. This means proceeds from shares or funds held outside a tax wrapper sold for a profit on or after 30th October 2024 will be subject to the new rates – 18% or 24% depending on your tax bracket.
This change means that investors with assets outside of pensions and ISAs need to carefully consider their CGT liabilities.
Thankfully, there are still ways to reduce your CGT burden:
- Annual allowances: use your CGT annual allowance (currently £3,000) to gradually realise gains in each tax year. You can do this by top slicing from investments that have performed well and perhaps reinvesting in other areas of your portfolio which haven’t done as well. This is called rebalancing – it helps to maintain the weightings in your portfolio between different asset classes (like shares and bonds), geographies and sectors.
- Offset your losses: when calculating your profits, be sure to include any losses you've made. Losses offset your gains, reducing the amount of CGT owed. Even if your losses exceed your gains, it’s still worth claiming the extra losses and carry them forward to the next tax year. Additionally, you do not have to report losses straight away - you can claim up to four years after the end of the tax year that you disposed of the asset.
5. Share assets with your spouse or civil partner
The recent changes to CGT rates announced in the Autumn Budget came into effect immediately. This means proceeds from shares or funds held outside a tax wrapper sold for a profit on or after 30th October 2024 will be subject to the new rates – 18% or 24% depending on your tax bracket.
If you're married or in a civil partnership, you can transfer ownership of your investments to the other person free of CGT. This means when they sell, they can utilise their own CGT allowance.
Couples can benefit further from CGT rules if your partner pays tax at a lower rate, or vice versa. For example, if you’re a higher-rate taxpayer and you transfer assets to your partner who is a basic-rate taxpayer, any gains will be taxed at 18% rather than 24%. This would reduce your tax bill by £600 on a profit of £10,000.
The same principle applies to any dividends you receive from your investments. Each tax year from 2024/25, you have a tax-free dividend allowance of £500. Anything above the allowance is tax based on your tax rate, which varies a lot between basic and higher rate taxpayers.
Source: HMRC. Figures based on the 2024/25 tax year.
With higher and additional rate taxpayers paying significantly more tax on dividend income, you could be better off transferring some of your investments to your partner if they’re a basic rate taxpayer. Alternatively, by moving your income-paying investments into an ISA or a pension you will avoid paying income tax on your dividends altogether.
Still need help? Speak to us
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Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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