Discover actionable strategies to reduce your tax bill and avoid traps as frozen thresholds and reduced allowances take effect.

As the tax year’s deadline approaches in early April, taxpayers are encouraged to use actionable strategies to lower their tax burdens and sidestep often-overlooked pitfalls. Recent policy decisions, such as frozen thresholds and reduced allowances, have pushed many into higher tax brackets, increasing financial strain. With strategic planning, you can optimise your contributions and deductions to make more efficient use of available allowances.

One of the most effective measures is to increase pension contributions. Taxpayers can benefit from tax relief at their highest marginal rate by contributing to pensions, which also helps reduce taxable income. Higher-rate taxpayers, for instance, can avoid crossing the 40% tax bracket by strategically paying into their pensions and carrying forward unused allowances from the past three years.

High-income families receiving child benefits can also use pension contributions to prevent earnings from exceeding the £60,000 threshold. This avoids the gradual repayment of child benefit through self-assessment and allows taxpayers to retain more of their income while securing National Insurance credits.

For individuals earning over £100,000, another challenge comes in the form of losing their personal allowance, resulting in significant tax disadvantages. By contributing earnings above £100,000 into a pension, taxpayers can reclaim their allowance and escape the “effective” 60% tax rate this threshold imposes. Similarly, this also safeguards eligibility for tax-free childcare benefits, potentially worth up to £2,000 annually.

Capital gains tax allowances have recently decreased dramatically, making it important for investors to consider realising gains up to the reduced threshold of £3,000 without incurring excess tax liabilities. Engaging in strategies like Bed and ISA transfers ensures investment growth is sheltered from capital gains tax in future years.

ISAs also remain a critical tool for reducing tax on income and investments. Both stocks and shares ISAs and cash ISAs allow taxpayers to shield dividends, capital gains, and savings income from tax obligations, with annual contribution limits of up to £20,000.

Couples, especially those married or in civil partnerships, can optimise their tax saving by transferring income-producing assets between themselves, ensuring better use of unused allowances. Claiming the Marriage Allowance is another effective means for lower-earning partners to transfer a portion of unused personal allowance to their higher-earning spouse, saving up to £252 per year.

These strategies not only provide opportunities to save on taxes but also highlight the benefits of acting early in a financial year. Seeking advice from a qualified financial professional can further ensure these approaches are tailored specifically to one’s financial circumstances, ensuring maximum impact on savings.