How to Protect Your Money from Rising Bills and Taxes in 2025: A Comprehensive Guide

By: Aditi

Published on: Mar 25, 2025

The dawn of the 2025/26 tax year brings fresh financial challenges for UK households. With frozen income tax thresholds, rising council tax, and increased capital gains tax (CGT) rates, millions face shrinking disposable income. However, strategic planning can help you mitigate these blows. In this guide, we’ll explore actionable steps to protect your money from rising bills and taxes starting April 2025.

1. The Income Tax Freeze: Why It Hurts and How to Fight Back

The government’s freeze on income tax thresholds until 2028 remains one of the most significant stealth taxes. While thresholds typically rise with inflation, this freeze means even modest pay rises could push you into higher tax brackets.

• Basic rate taxpayers (£12,571–£50,270): Earning a 5% raise could move £2,513 of your income into the 40% bracket.


• Higher-rate taxpayers (£50,271–£125,140): A salary increase may edge you closer to losing your personal allowance (£1 reduction for every £2 earned over £100,000).

Solution: Boost Pension Contributions
Paying more into your pension offers immediate tax relief:

• Basic rate taxpayers: Save 20% (e.g., £800 tax relief on a £1,000 contribution).


• Higher-rate taxpayers: Claim an additional 20% via self-assessment.


• Additional-rate taxpayers: Total relief reaches 45%.

Example: Earning £55,000? Contributing £4,730 annually to a pension keeps you below the higher-rate threshold, saving £1,892 in tax.

Pro Tip: Use salary sacrifice schemes if available—they reduce National Insurance (NI) contributions too.

2. Shield Savings with ISAs

With savings rates rising, more interest income risks crossing the Personal Savings Allowance (£1,000 for basic-rate, £500 for higher-rate taxpayers).

Cash ISAs

• Tax-free interest, unlimited withdrawals (flexible ISAs).


• 2025/26 allowance: £20,000 (shared with Stocks & Shares ISA).

Stocks & Shares ISAs

• Protect dividends and capital gains from tax.


• Ideal for long-term investors.

Innovative Finance ISAs

• Tax-free peer-to-peer lending returns.

Case Study: A basic-rate taxpayer earning £1,500 in savings interest would pay £100 in tax outside an ISA. Using a Cash ISA saves the full amount.

3. Marriage Allowance: Claim Free Tax Relief

If one spouse earns under £12,570 (2025/26 personal allowance) and the other is a basic-rate taxpayer, transfer £1,260 of the unused allowance.

• Annual Savings: £252 (£1,260 × 20%).


• Backdate Claims: Retrieve up to £1,258 for 2021–2024 tax years if eligible.

How to Apply:

1. 
   

   Complete HMRC’s Marriage Allowance form.

   
   


2. 
   

   The lower earner must initiate the transfer.

   
   

4. Capital Gains Tax (CGT) Hike: Protect Investments

CGT rates rose sharply in April 2024:

• Basic-rate taxpayers: 10% → 18% (18% for residential property).


• Higher-rate taxpayers: 20% → 24% (28% for property).

Strategies to Minimize CGT:

• Use Your Annual Exemption: Realize £3,000 gains before 5 April 2025 and another £3,000 after 6 April.


• Bed & ISA: Transfer investments into an ISA to shelter future gains.


• Joint Ownership: Split assets with a spouse to double exemptions (£6,000 total).

Example: Selling shares with a £5,000 gain? Use 2024/25 and 2025/26 allowances to avoid tax entirely.

5. Dividend Tax: Optimize Allowances

The tax-free dividend allowance drops to £500 in April 2025. Higher rates apply:

• Basic rate: 8.75%


• Higher rate: 33.75%


• Additional rate: 39.35%

Mitigation Tactics:

• Stocks & Shares ISA: Hold dividend-paying shares here.


• Spread Ownership: Transfer shares to a lower-earning spouse.

6. Council Tax Hikes: Check Discounts

Average council tax bills rose 5% in April 2025. However, you might qualify for reductions:

• Single Person Discount: 25% off if living alone.


• Low-Income Support: Apply via local council.


• Disabled Band Reduction: If adapted for disabilities.

Action: Use the Government Council Tax Calculator to check eligibility.

7. Salary Sacrifice: Trim Tax and NI

Exchange part of your salary for tax-free benefits:

• Electric Vehicles: Save up to 42% on NI and income tax.


• Childcare Vouchers: Up to £933/year tax-free (if enrolled pre-2018).


• Cycle to Work: Save 32%–42% on bikes/equipment.

8. Property Tax Tweaks

Stamp Duty Holiday Ends: Rates return to pre-2020 levels. First-time buyers pay 0% on £300,000–£425,000.
Rental Properties: Mortgage interest tax relief remains at 20%. Offset costs like repairs and agent fees.

9. Inheritance Tax (IHT) Planning

With the nil-rate band frozen at £325,000 until 2028:

• Gift Allowances: £3,000/year tax-free (+ unused prior year).


• Regular Gifts: Use the “normal expenditure out of income” rule.


• Trusts: Reduce estate value while retaining some control.

10. Energy Bills: Lock In Fixed Rates

Ofgem’s price cap rose 12% in April 2025. Combat this by:

• Comparing Suppliers: Use Ofgem-accredited sites like MoneySuperMarket.


• Improving Efficiency: Claim up to £7,500 via the Boiler Upgrade Scheme.

FAQs

Q: Can I backdate the Marriage Allowance?
A: Yes—claim for up to four previous tax years if eligible.

Q: How does Bed & ISA work?
A: Sell investments and immediately repurchase them within an ISA. Capital gains up to £3,000 are tax-free.

Q: What if I exceed the dividend allowance?
A: Declare it via self-assessment. Basic-rate taxpayers pay 8.75% on excess dividends.

Final Tips for Tax Year 2025/26

1. Review Payslips: Check tax codes after April to avoid overpaying.


2. Maximize ISAs: Use your £20,000 allowance before 5 April 2026.


3. Consult an Advisor: Complex situations (e.g., multiple income streams) warrant professional guidance.

By leveraging pensions, ISAs, and allowances, you can turn the tide against rising taxes. Start planning today to keep more of your hard-earned money tomorrow.

By implementing these steps, you’ll not only survive the 2025 tax changes but thrive despite them. Stay proactive, stay informed, and let your money work smarter—not harder.