Maximising Your Finances: Key Tax Rates & Allowances for 2025/26

As we step into the 2025/26 tax year, understanding the latest tax rates and allowances is essential for effective financial planning. At Gow and Partners, we specialise in helping individuals and businesses navigate the complexities of UK tax law, ensuring you make the most of available allowances and reliefs. Here’s a breakdown of the key tax changes for 2025/26 and how you can benefit from strategic tax planning.

‍

‍

Income Tax Allowances & Rates

Personal Allowance: The standard Personal Allowance remains at £12,570. However, if your income exceeds £100,000, this allowance is reduced by £1 for every £2 earned, tapering to zero at £125,140. Effective planning can help mitigate this reduction through pension contributions or charitable donations.

Personal Savings Allowance:

• Basic-rate taxpayers: £1,000
• Higher-rate taxpayers: £500
• Additional-rate taxpayers: £0

Dividend Allowance: The tax-free dividend allowance is £500, making tax efficiency in investment portfolios more crucial than ever.

Marriage/Civil Partner Allowance: You can transfer up to £1,260 of your Personal Allowance to your spouse or civil partner if they are a basic-rate taxpayer, reducing their tax bill by up to £252 per year.

Other Key Allowances:

• Trading & Property Allowance: £1,000 each – Ideal for individuals with small side incomes.
• Rent-a-Room Scheme: £7,500 – A great incentive for those letting out furnished rooms in their homes.
• Blind Person’s Allowance: £3,130 – Additional relief for eligible individuals.

‍

‍

Income Tax Bands & Rates

• Basic Rate: 20% (Income between £12,571 and £50,270)
• Higher Rate: 40% (Income between £50,271 and £125,140)
• Additional Rate: 45% (Income above £125,140)

For Scottish taxpayers, income tax bands differ:

• Starter Rate: 19% (Income between £12,571 and £15,397)
• Basic Rate: 20% (Income between £15,398 and £27,491)
• Intermediate Rate: 21% (Income between £27,492 and £43,662)
• Higher Rate: 42% (Income between £43,663 and £75,000)
• Advanced Rate: 45% (Income between £75,001 and £125,140)
• Top Rate: 48% (Income above £125,140)

‍

‍

Value Added Tax (VAT)

VAT Registration Threshold: £90,000 (businesses must register if turnover exceeds this amount in a 12-month period).

VAT Deregistration Threshold: £88,000 (businesses can deregister if turnover falls below this level).

VAT Rates:

• Standard Rate: 20%
• Reduced Rate: 5% (e.g., for certain home energy and hospitality items)
• Zero Rate: 0% (e.g., most food, children’s clothes, books, and newspapers)

VAT Schemes for Small Businesses:

• Flat Rate Scheme: Available to businesses with turnover up to £150,000, allowing a simplified VAT payment process.
• Cash Accounting Scheme: Available for businesses with turnover below £1.35 million, allowing VAT to be paid only when invoices are paid.
• Annual Accounting Scheme: Available to businesses with turnover up to £1.35 million, enabling advance VAT payments based on estimated yearly liability.

Effective VAT planning is crucial for businesses to manage cash flow and compliance. We can assist with VAT registration, returns, and strategies to minimise VAT liabilities.

‍

‍

National Insurance Contributions (NICs)

Class 1 (Employees):

• Earnings up to £12,570: 0%
• £12,571 – £50,270: 10%
• Above £50,270: 2%

Class 4 (Self-Employed):

• Profits up to £12,570: 0%
• £12,571 – £50,270: 9%
• Above £50,270: 2%

Class 2 (Self-Employed Flat Rate): £3.45 per week

‍

‍

Stamp Duty Land Tax (SDLT)

For property purchases in England and Northern Ireland:

• Up to £250,000: 0%
• £250,001 – £925,000: 5%
• £925,001 – £1.5 million: 10%
• Above £1.5 million: 12%

First-time buyers benefit from a higher threshold, paying 0% up to £425,000 and 5% on the portion up to £625,000.

‍

‍

Pension Contributions & Tax Relief

• Annual Allowance: £60,000 (reduced by £1 for every £2 earned above £260,000, down to a minimum of £10,000)
• Lifetime Allowance: Abolished from April 2024, replaced with a cap on tax-free lump sums at £268,275.
• Tax relief available at the highest rate of income tax paid.

‍

‍

Tax on Benefits & Vehicles

For those using company vehicles, Benefit-in-Kind (BIK) rates are based on CO₂ emissions. For example:

• Electric cars (0 g/km CO₂): 3% BIK rate
• 1–50 g/km CO₂ with an electric range over 130 miles: 3%
• 51–54 g/km CO₂: 16%
• Over 54 g/km CO₂: Increases by 1% for every 5g/km up to a maximum of 37%

Diesel vehicles not meeting the RDE2 standard incur a 4% surcharge, up to a maximum of 37%.

Car Fuel Benefit Multiplier: £28,200

Van Benefit Charge: £4,020

Van Fuel Benefit Multiplier: £769

‍

‍

Tax-Free Mileage Allowances:

• Cars & Vans (including electric vehicles): 45p per mile (first 10,000 miles), 25p thereafter
• Motorcycles: 24p per mile
• Bicycles: 20p per mile
• Business Passengers: 5p per mile

‍

‍

How Our Accounting Firm Can Help

Understanding these tax rules is just the beginning. Effective tax planning can lead to significant savings and improved cash flow. Here’s some ways we at Gow and Partners can assist:

Personalised Tax Planning – We assess your income, investments, and expenses to minimise tax liabilities.

‍Dividend & Investment Strategies – Helping you maximise returns within the new tax brackets.

Salary vs. Dividends for Directors – Finding the most tax-efficient mix for business owners.

‍Maximising Business Tax Reliefs – Including capital allowances and R&D tax credits.

‍Self-Assessment & Tax Return Assistance – Ensuring accuracy and compliance while identifying potential tax-saving opportunities.

For more rates and figures, view the extended PDF version of this blog.

‍

‍

Set Yourself up for Success    

‍  

Did you know that we run the highest rated accountancy firm in Blackburn with Darwen?  

‍  

Book your 30 minute discovery call  today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.    

Alternatively, you can send us a message  with any queries (big or small), and one of our team members will get back to you promptly.

‍